Chris O'Shea
One of the biggest factors that is considered when calculating your credit score is your credit utilization ratio. It’s not as complicated as it sounds. Here’s what you need to know.
Ratio Basics
Your credit utilization ratio is the total amount of credit used (utilized) divided by the total amount of credit available. The lower your ratio, the better it is for your credit score. You typically don’t want your ratio to be higher than 30 percent.
Ratio Factors to Consider
Items considered in your credit utilization ratio include credit cards, personal lines of credit, HELOCs, and any closed accounts that still have a balance.
How to Calculate Your Ratio
To calculate the ratio, do the following:
- Go to your credit report.
- Add up the total balances.
- Then add up the total available credit.
- Next, divide the total balance by the total available credit, and multiply by 100.
You can also search for a ratio calculator online.
How to Lower Your Ratio
The most effective way to lower your credit utilization ratio is to pay your balances in full on time, every time.
If you need help remembering, try these steps:
- Set reminders on your calendar or phone
- Set up autopay.
You can also call your credit card company and ask to have your available credit increased.
Do One Thing: Calculate your utilization ratio to make sure you are not getting negatively impacted by it.
