How to Calculate Your Credit Utilization Ratio
Credit utilization is a key factor in determining your credit score, so it’s crucial to understand how it works. Learn how to calculate your credit utilization ratio, discover what a good credit utilization ratio is, and get tips on how to improve yours:
For more on managing your credit utilization ratio, check out this article.
Video Transcript
Knowing the factors that make up your credit score are important so you can live the life you want. And one of the biggest? Credit card utilization. In other words, how much of your credit card's limits are you using at any given time? In general, the magic number you want is below 30%, or in other words, a 30% balance to credit limit ratio.
Let's break it down. One of your cards has a balance of $6,000 with a limit of $10,000, and a second card has a $1,000 balance and a $ 7,000 limit. That's an overall balance of $7,000 against combined limits of $17,000, and that's a 41% percent credit utilization ratio.
So, to get to 30%, you need to pay your balance down to $5,100 to continue building a good credit score.
Now, here are some other tips to help you achieve a 30% ratio. Consider refinancing your credit cards to get lower rates. That saves you extra money you can use towards paying your debts down. You can also request a credit limit increase, and it also helps to leave zero balance accounts open because that maintains your credit limit while keeping your balances low.
It's good to show you how. have good credit utilization. As that shows lenders, you handle credit responsibly. But however you do it, keep that target below 30%. Get the credit score you want so you can do all the things you want.
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