Credit Utilization – What is it?

Credit utilization is simply your total balances divided by total credit limits: 

Revolving Debt Balances / Credit Limits = credit utilization 

This calculation is how creditors determine your revolving credit utilization. The credit utilization percentage tells them how much of your available credit you are currently using. You want this number to as low as it can be. 

Why is this important? 

Approximately 30% of your FICO credit score is based on amount of debt. The higher your credit utilization percentage, the lower your score will be. 

What you can do: 

Keep revolving account balances as low as you can.  This includes credit card balances and merchant charge cards to name a couple. 

Ask for higher credit limits.  Make sure you are disciplined enough not to increase your spending. 

Keep unused account open.  That unused credit limit will help lower your credit utilization ratio/percentage. Don’t let the creditors close those unused accounts. Charge 1 or 2 inexpensive items each month – but don’t let it get out of control, pay it off if you can each month. 

You don’t have to pay all cards down to zero – but keep the balances as low as possible

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