Thread: What is credit utilization ratio?

Hi there,

I may be daft, but I'm having a difficult time understanding what is credit utilization ratio.

Is it simply how close you get to you limit every month, no matter how you pay it off? (i.e., I spend $450 on a card with a $500 credit limit, and pay it in full (or half, or minimum) that month, bringing my credit utilization ratio to 80%) Or is it what you don't pay that month that carries over? (i.e., I spend $450 on a card with a $500 credit limit, and pay it half back that month, bringing my credit utilization to 40%)

-Paul

It is the ratio of the balance reported on your statement vs your credit limit. So if your statement says $450 on a $500 limit that's actually 90%, not 80%. It does not take into account what you pay off that month, even if you pay in full - only what was on your statement. Keep in mind lenders can consider your utilization on one card and your overall utilization.

For example if you had $450 on a $500 limit card (90%) and another $450 on a $4500 limit card (10%) your overall utilization would be 900/5000 = 18% - which is not too bad but you would still get dinged on your score for having that first card nearly maxed out, even though your overall utilization is low.
Hope this helps.

Note that having only one card with a high utilization can still affect your score even if you have $0 balance on your other cards.