Your credit utilization ratio—the portion of your available credit that you’re actually using—is one of the most influential factors in calculating your credit score. It typically accounts for about 30% of your FICO or VantageScore and can significantly impact your eligibility for loans, cards, and better interest rates.
To calculate your utilization ratio:
For example, if you owe $3,000 across all cards and your combined limits equal $15,000, your utilization ratio is 20% ($3,000 ÷ $15,000).
Credit scoring models like FICO factor utilization as the second-largest component after payment history. A lower ratio indicates better credit management and lower risk—leading to higher scores.
Studies show that consumers with excellent credit often maintain around 5% utilization, while even utilization below 30% is often considered healthy.
General guidelines are:
Keeping balances low and paying before your statement closing date can ensure lenders see your utilization in a positive light.
Altogether, avoiding credit use may seem safe, but lenders prefer to see responsible usage. A low utilization (e.g., 1%–5%) shows you can borrow and repay rather than leaving accounts dormant.
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