One of the biggest factors impacting your credit score is your available credit. But agencies like FICO (also known as Fair Isaac Corp. (NYSE:FICO)) don’t just look at your available credit on its own; they look at what percentage of your available credit you actually use. That’s called your credit utilization ratio, and it accounts for 30% of your credit score.
The ideal credit utilization ratio isn’t 0%, though. Creditors want to see that you can use your credit limit responsibly, not avoid using it entirely. Still, the lower the better.
So, the amount of available credit you should have is really a function of how much you plan to spend on your credit cards in the average month.
The easy way to figure out how much available credit you should have
The average user of a credit card spends between $639 and $843 per month. That is, unless that user has an American Express card, which apparently attracts big spenders: An Amex holder spends an average of $1687 per month.
But you’re not an average person. You have your own particular spending habits. Thankfully, if you already have a credit card, a nice record of the amount you spend on it every month is provided for you. You can usually find an archive of all your monthly statements when you log into your issuer’s website.
Here’s an easy way to figure out how much available credit you should have to maintain a good credit score:
Go through the last 12 months of credit card statements and find the biggest bill you received.
Multiply that number by five.
There’s no step three.