How Is My Credit Utilization Ratio Calculated? - NerdWallet

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How Is My Credit Utilization Ratio Calculated?

Credit Cards, Credit Score, Personal Finance
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How Is My Credit Utilization Ratio Calculated?

Credit Cards, Credit Score, Personal Finance
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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 raise 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.

Updated Oct. 24, 2016. 

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What’s the Difference Between a Soft Inquiry and a Hard Inquiry on My Credit Report?

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What’s the Difference Between a Soft Inquiry and a Hard Inquiry on My Credit Report?

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What's the Difference Between a Soft Inquiry and a Hard Inquiry on My Credit Report?

When a potential creditor checks into your credit, it’s called “pulling your credit.” But two different types of credit checks can be performed: a “soft inquiry” or a “hard inquiry.” The Fair Credit Reporting Act places restrictions on exactly when and why credit reports may be pulled.

The primary hallmark of a soft inquiry or soft pull is that it does not adversely affect your credit score; a hard inquiry will.

» MORE: See your credit score for free with NerdWallet

Soft pulls

Soft inquiries often occur without you even knowing about them. If you’ve ever received a credit card offer in the mail, it’s likely that the credit card company did a soft inquiry to see if you would even qualify for the card. After all, it doesn’t want to waste the postage on someone who doesn’t qualify. The same goes for other types of loan offers, or when a mortgage broker or lender does a pre-approval.

Employers also may do a background check on you. Employers often feel more comfortable hiring someone with good credit, as they think it indicates a responsible individual.

Most importantly, checking your own credit is a soft inquiry, so never be afraid to check your credit for fear your own inquiry will hurt your score. (You are entitled to a free annual credit report from each of the three major credit-reporting agencies.)

Hard pulls

Hard inquiries do affect your credit score. You will likely know about them — or rather, you had better know about them — because your consent is required. A hard inquiry is triggered when you actually apply for credit, including a mortgage, credit card, auto loan, student loan, personal loan or a business loan.

This inquiry becomes part of your credit report, meaning anyone else who does a hard or soft pull will see the inquiry. A hard inquiry may shave up to 5 points off your FICO score. However, when you are “rate shopping” (such as for mortgage, student and auto loans), all inquiries within a 45-day period are considered one inquiry. VantageScore, FICO’s competitor, also has shopping windows that count as a single inquiry, though they are generally shorter. A spokesman said a hard inquiry can shave 10 to 20 points off a VantageScore.

You want to be careful not to hit your credit report with too many hard inquiries. Consider whether those bonuses you are hoping to receive by getting that credit card are worth the ding to your credit score. If you have outstanding credit, a few points may not be a big deal. However, if you have borderline credit quality, think twice.

Hard or soft?

Some inquiries could be either soft or hard. If you rent a car, apply to rent an apartment, sign up for cable TV or Internet service, open an account at a financial institution, or someone just needs to verify your identity, you may get hit with either a hard inquiry or a soft inquiry. The only way to know is to ask the potential creditor, and maybe even check in with one of the credit bureaus.

This post updated June 24, 2016.  It originally published March 27, 2014.

  • A hard pull counts as a credit inquiry and will cause your score to drop by about 5 points, a soft pull can only be seen by you and the lender that initiated it.

  • A hard pull counts as a credit inquiry and will cause your score to drop by about 5 points, a soft pull can only be seen by you and the lender that initiated it.

  • A hard pull counts as a credit inquiry and will cause your score to drop by about 5 points, a soft pull can only be seen by you and the lender that initiated it.

  • LAE2014

    Anyone know the difference between the two pulls in regards to what the business (who is pulling credit) can see? For example, does a soft pull only show basic things like credit score and number of lines of credit or debt/income ration while a hard pull will show specifics like details of inquiries, details of liens/judgments, details of open lines, etc? And also, when a credit card company does a soft pull to tell you you are “preapproved” for credit, do they then have to do a hard pull when you actually apply for access? Thanks!

  • LAE2014

    Anyone know the difference between the two pulls in regards to what the business (who is pulling credit) can see? For example, does a soft pull only show basic things like credit score and number of lines of credit or debt/income ration while a hard pull will show specifics like details of inquiries, details of liens/judgments, details of open lines, etc? And also, when a credit card company does a soft pull to tell you you are “preapproved” for credit, do they then have to do a hard pull when you actually apply for access? Thanks!

  • LAE2014

    Anyone know the difference between the two pulls in regards to what the business (who is pulling credit) can see? For example, does a soft pull only show basic things like credit score and number of lines of credit or debt/income ration while a hard pull will show specifics like details of inquiries, details of liens/judgments, details of open lines, etc? And also, when a credit card company does a soft pull to tell you you are “preapproved” for credit, do they then have to do a hard pull when you actually apply for access? Thanks!

  • tffitzp

    How do the CRA’s distinguish between hard and soft inquiries that are made?

  • tffitzp

    How do the CRA’s distinguish between hard and soft inquiries that are made?

  • tffitzp

    How do the CRA’s distinguish between hard and soft inquiries that are made?

  • Mark Toman

    damn it! I was looking to get a collector to do 850 hard pulls in one second for the minus points. Looks like that wont work.

  • Mark Toman

    damn it! I was looking to get a collector to do 850 hard pulls in one second for the minus points. Looks like that wont work.

  • Mark Toman

    damn it! I was looking to get a collector to do 850 hard pulls in one second for the minus points. Looks like that wont work.

  • Mark Toman

    by collector, I mean one local in town, just for the heck of it.

  • Mark Toman

    by collector, I mean one local in town, just for the heck of it.

  • Mark Toman

    by collector, I mean one local in town, just for the heck of it.

  • Mark Toman

    looking for a fico score of 300 that nobody yet has for the record to perma-freeze.

  • Mark Toman

    looking for a fico score of 300 that nobody yet has for the record to perma-freeze.

  • Mark Toman

    looking for a fico score of 300 that nobody yet has for the record to perma-freeze.

  • MT

    I want to know who gives these companies authority to do a ‘soft pull’ I don’t want all my private information out there because some company decided they’d snoop on my value as a potential customer.

  • MT

    I want to know who gives these companies authority to do a ‘soft pull’ I don’t want all my private information out there because some company decided they’d snoop on my value as a potential customer.

  • MT

    I want to know who gives these companies authority to do a ‘soft pull’ I don’t want all my private information out there because some company decided they’d snoop on my value as a potential customer.

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How Do Secured Credit Cards Work?

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How Do Secured Credit Cards Work?

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You can trust that we maintain strict editorial integrity in our writing and assessments; however, we receive compensation when you click on links to products from our partners and get approved. Here's how we make money.
How Do Secured Credit Cards Work?

If you have bad credit, a secured credit card can be a great way to improve your credit. Secured cards work the way regular credit cards do: You charge purchases to your account, make monthly payments and pay interest on balances you carry from one month to the next.

» MORE: See your credit score for free with NerdWallet

But there’s one major difference. You have to make a deposit to receive a secured card. This deposit protects the card issuer in case you don’t make your payments — and makes it easier for people with poor credit or a short credit history to get approved.

How the security deposit works

When you rent an apartment, you give the landlord a security deposit, which he or she can use to pay for repairs of any damage you might leave behind. Deposits on secured credit cards are similar: You provide a certain amount of money as collateral, and the credit card issuer usually gives you a credit limit equal to your deposit. For example, if you make a $500 deposit, your credit limit will also be $500.

When your lease is up, if your apartment is still in good shape, your landlord will refund your security deposit. Likewise, if you make on-time payments on your secured credit card, you’ll get your deposit back when you close or upgrade your account.

Find the right card

If you’re getting a credit card to remedy your bad credit, choose one that reports to all three credit bureaus. Not all cards do. If your card issuer doesn’t report, you won’t improve your credit, no matter how faithfully you make your payments.

» MORE: NerdWallet’s best secured credit cards

The application process

Even though you’ll put down a security deposit, you won’t automatically be approved for a secured card. You still have to apply, and most of the time, the issuer will check your credit. Each credit check resulting from a credit application lowers your credit score a bit, so it’s not a good idea to apply for too many cards. If you’ve been rejected by a few issuers, explore other options. If you have a very low score, you may want to look for a card that doesn’t require a credit check at all — and there are a few.

» MORE: I was denied a secured credit card. What do I do?

Use your card the smart way

To improve bad credit, always make payments to your secured card on time and use only a small percentage of the credit extended to you. Don’t assume that your credit card company will use your deposit to cover any of your payments — secured cards aren’t the same thing as prepaid debit cards. Skip a payment, and you’ll end up with late fees and a negative on your credit report.

Level up

After your credit has improved, you may want to close your secured credit card and switch to an unsecured card — one with a higher limit that doesn’t require a deposit. If you’re thinking of doing this, call your credit card company and ask if it will upgrade you to an unsecured card. If you have a good payment history, the answer may well be “yes.”

If you choose to close your secured card, call your credit card issuer to request that it close your account and refund your security deposit.

This article has been updated. It was originally published Dec. 12, 2014.

Lindsay Konsko and Virginia C. McGuire are staff writers at NerdWallet, a personal finance website. Email: lindsay@nerdwallet.com and virginia@nerdwallet.com. Twitter: @lkonsko and @vcmcguire


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What Is a Credit-Builder Loan?

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What Is a Credit-Builder Loan?

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What Is a Credit-builder Loan?

Credit-builder loans can help you build your credit score, and they don’t require good credit to start with.


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They’re not widely advertised and are generally offered by smaller financial institutions, such as credit unions and community banks. The purpose, as their name suggests, is to help people achieve credit respectability.

Financial institutions would like to see you succeed. After all, if you become a customer, you’re more likely to make money for them in the future. To make sure it doesn’t get burned on the loan, the lender will set strict limitations. Think of it as training wheels for credit.

Credit-builder loans go by many names, such as the catchy “Fresh Start Loans” or “Starting Over Loans.” If you’re looking to restore your credit with an installment loan, ask your bank or credit union about secured personal loans designed to help people who need to help build credit.

Secured credit cards have long been suggested as a means of credit building — and they can be very effective — but you first have to have enough money to pay the security deposit.

If you have an income but can’t pay a deposit for a secured credit card, credit-builder loans offer a way around that hurdle.

How credit-builder loans work

You apply for the loan, whether you have bad credit or no credit, and you are approved, but there’s a safety net for the lender. The money you borrow is deposited in a savings account — one that you cannot access until you have fully repaid the loan.

If you pay the loan as agreed, the financial institution promises to send a good report to the credit bureaus. A 2013 study showed an average improvement of 35 points with six months of on-time payments for loans as small as $100.

At the end of the loan term, you get the money — and likely a better credit score.

But be sure to pay on time. If you miss payments, that negative information would also be reported. The financial institution doesn’t take a big risk when it lends to you, because it can reclaim the money if you don’t hold up your end of the bargain.

If you’re looking for a credit builder loan and your credit union or community bank doesn’t offer them (or even know what they are), you might try a Community Development Financial Institution. These organizations exist to help lower-income communities, and there are about 1,000 of them in the United States. Government grants and other incentives make these small-dollar loans more attractive to financial institutions.

Online lenders include Self Lender, which offers $1,100 loans repaid over a year at $100 a month. At the end, you get $1,100 and a credit score with a year of on-time payments.

How secured installment loans work

You don’t have to be low-income to have crummy credit or a need to improve. If you have money in the bank, you may have another option for an installment loan: a share- or certificate-backed loan.

In that case, a deposit you already have at the financial institution is the collateral, and that money is frozen until the loan is repaid (or it may be incrementally thawed, as the loan is repaid). So if you have funds on deposit at a small bank or credit union, it may be worth asking if you can borrow against them to help re-establish your standing. Other lenders may allow you to borrow against the value of your car.

You may have other options for building credit

Secured loans such as credit-builder loans tend to be a good deal because the collateral reduces risk for the lender and greatly reduces the interest rate, which is typically well under 10%. The catch, of course, is that you don’t get the money until the loan is repaid.

If you are trying to build credit and need the proceeds of a loan immediately (for debt consolidation, for example), you will probably need to take an unsecured personal loan. That means the lender has no collateral, just the strength of your credit history, to rely on. If your credit is damaged or thin, you’ll pay higher interest rates, sometimes as much as 36%, which tends to be the ceiling with most lenders.

Some lenders who will grant you unsecured personal loans without checking your credit at all, but those installment loans are much more like payday loans. The lenders don’t check your credit, but they also don’t report to credit bureaus unless you default. And the loans carry interest rates that can easily reach 300% or higher.

Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email:boshea@nerdwallet.com. Twitter: @BeverlyOShea.


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How Paying Rent Can Affect Your Credit

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How Paying Rent Can Affect Your Credit

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How Paying Rent Can Affect Your Credit

A lot of people who don’t have much in the way of a credit history do have a history of paying rent on time. If that information showed up on their credit reports, it might help their credit scores.

You can’t report rent payments yourself. But rent-reporting services can get your credit reports to reflect your rent payments fairly easily, at a cost that ranges from free to more than $100 a year.

» MORE: See your credit score for free with NerdWallet

But here’s the catch: There are many different credit scores calculated from the information on your credit reports, and most credit card issuers and lenders don’t use the scores that consider rent payments. When you apply for credit, you don’t generally know which score the lender is going to pull when it checks your credit, or which credit bureau’s report it will use.

To use a rent-reporting service effectively, you’ll need to know which credit bureaus it will report your payments to — and which credit scores take those payments into account.

Which credit scores consider rent payments?

Rent payments remain rarely reported. A FICO spokesperson estimated that less than 1% of credit files contain rental entries, or “tradelines.”

All three major credit bureaus — Experian, Equifax and TransUnion — include rent payment information in credit reports if they receive it.

Although rent is reported as a tradeline — much like a mortgage or car loan would be — it’s not treated the same for scoring purposes, says consumer credit expert Barry Paperno, who blogs at Speaking of Credit. “Unless a prospective lender includes that information outside a credit score, it may not help,” he says.

Only a few credit score algorithms consider the information in calculating a score. The most commonly used versions of the FICO score don’t use rental payment information, but FICO 9 and FICO XD do, as does VantageScore.

Some renters use the reporting services to get credit through lenders that are known to use those scores. At least one rental reporting company tells its customers which credit cards to apply for — and all credit scoring formulas include credit card payments.

How does rent reporting compare with other types of credit building?

Other credit-building strategies rely on more traditional tradelines. You can get a secured credit card, for example, or a credit-builder loan. Revolving debt, such as credit cards, and installment loans are considered in virtually every credit score.

“Rent information will help lenders that are prospecting for possibly creditworthy people who have been overlooked,” NerdWallet columnist Liz Weston says. “But most lenders are still focused on attracting people with good traditional credit scores. If you want the best rates and terms, you have to build credit the old-fashioned way — with credit accounts.”

Still, it is possible for you to be approved for a loan without a FICO score — even a loan as large as a mortgage — but you will likely be working with a small lender.

And having rental payment information in your credit report can be useful if you rent again. Landlords prefer tenants who can show a history of paying on time. A study by the nonprofit Credit Builders Alliance showed that rent reporting both increased on-time rent payments and credit scores (Vantage 3.0) for participants.

Which services will report your rent payments to lenders?

There are several ways to get records of your payments in front of lenders. Among them:

Rent Reporters: Setup is free, and the service is free for 15 days. After that, if you pay by e-check, there is a processing fee of $3.95, and if you use a credit or debit card, it’s 2.95%. (Note: If you are paying Rent Reporters by credit card, you already have a tradeline on your credit report.) Rent payments may be reported retroactively, and it sends rent payment information to the three major credit bureaus.

Rental Kharma: Initial setup is $40, and then the service is $9.95 per month. During enrollment, you can report payments made in the previous 24 months. It reports to TransUnion.

RentTrack: The service costs $1.95 a month (unless paid by the landlord and offered free to tenants) and reports to all three credit bureaus. A 24-month look back at previous payments may not be available if multiple leases are involved.

ClearNow: This service debits your rent from your checking or savings account. There’s no cost to tenants, and, if you opt in, payments are reported to Experian.

PayYourRent: Variable fees, depending on how rent is paid; in some cases the fees are paid by management. It reports to TransUnion and Experian.

Next steps

If you’re shopping for a way to have rent reported on your credit report, here are questions you should ask of service providers. Also, check to see if your property manager already works with one.

  • What would my total costs be for a year of service, including any setup fees or fees for reporting previous rental history? (Some services can go back as far as 24 months.)
  • How do you protect my personal data?
  • Which of the major credit bureaus do you report to? (All three is ideal.)
  • Do you provide free access to credit scores, and if so, which score(s)?
  • How soon should I expect the information to appear on my credit report?
  • How can I cancel the service?
  • What happens if I have a dispute with my landlord? In some states, renters have a right to withhold payment if the landlord fails to keep the unit repaired and habitable. Critics have expressed concern that consumers might be afraid to exercise tenant rights for fear of being reported late to the credit bureaus.

Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

This article was updated. It originally published Aug. 14, 2014.

  • RMR

    I set up a rent payment with a reporting service and 6 months later, my credit score jumped almost 70 points!

  • RMR

    I set up a rent payment with a reporting service and 6 months later, my credit score jumped almost 70 points!

  • RMR

    I set up a rent payment with a reporting service and 6 months later, my credit score jumped almost 70 points!

  • BigPickture

    PayLease finally reported my rental account to TransUnion (2 months after registration). Waiting for this to show up on Experian.

    Bad part, they only show details from the date you enroll in this service, not from the day you made your first payment with them. So effectively, it reduced my credit’s average age of the accounts ( and score fell by 10 points)

  • Robert at SitBackPain

    great info but I think the pricing needs updating ; )

  • Carrie Simmons

    I’m trying to get the n a me of the one I signed up with. Individual landlord. They report your past r e nt no program for you to have to pay your rent through a service. They just verify the rent. I even was set up for a 3 payments . I erased all my email and can’t rember their name. The payments start next week.

  • Carrie Simmons

    These companies don’t get all the dates reported of your payments

  • Shirley Chang

    I used RentReporters and my score went from a 640 to 800+. It helped me save $130 a month for my mortgage payment when I refinanced. RentReporters also has a coupon code for signing up $20 off using code TMUK.