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How Is My Credit Utilization Ratio Calculated?

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How Is My Credit Utilization Ratio Calculated?

Your credit utilization ratio is a measure of how much you owe on your credit cards compared with the cards’ limits.

This number matters a lot. Both FICO (the credit score used in most lending decisions) and VantageScore (its main competitor) heavily weight credit utilization while calculating scores.

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Keeping your credit utilization ratio as low as you can is smart.

Charging too much on your cards (especially if you max them out) is associated with being a higher credit risk. That’s why running up your cards will lower your score. A low credit score will make it harder for you to qualify for the best rates on loans, insurance policies and other financial products.

Calculate your credit utilization ratio

Credit scores look at credit utilization in two ways:

Per-card utilization (also called line-item utilization): This measures how much of each card’s credit limit you’re using.

Overall utilization (also called aggregate utilization): This takes all your cards and their limits into account.

Enter the balance and credit limit for up to three cards in this calculator to see your per-card and overall utilization figures:

Per-card vs. overall — which is more important?

So which is more important: your per-card or overall utilization ratio? Trick question: Both are important. Credit scores can take the ratio into account in both ways — for each card and overall.

Why that’s important to know: If you try to counteract the negative effects of a maxed-out credit card by opening a new card and keeping its balance at $0, the high utilization ratio on the maxed-out card still may hurt your score.

Most experts say you shouldn’t use more than 30% of your credit limit on any one card. That way, the overall usage takes care of itself.

Tips for taming your credit utilization

Here are tips to keep your credit utilization under control:

  • Log in to your credit card accounts online and check your balances at least once a week.
  • Set up balance alerts to get a text or email when your balance creeps up near the 30% threshold (or set a lower bar if you like).
  • Make several small payments during the month rather than letting charges build up and sending one big payment on the due date. If you get paid more than once a month, use each paycheck as a reminder to make those smaller payments.
  • Consider asking your card issuer to bump up your credit limit, but only if it won’t tempt you to overspend and you think that your credit score is good enough to qualify. Jumping to a higher limit will instantly lower your utilization ratio.
  • Keep in mind that per-card utilization counts. Retail stores, car repair shops and some medical offices offer credit cards as a financing option. However, these cards tend to have low limits, which can combine with your large initial charge to send utilization soaring. You score may suffer until you get that card’s balance whittled down.

Updated Oct. 24, 2016.