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How Important is My Credit Utilization Rate to My Credit Score?

The short answer? Very. The slightly longer but still relatively short answer? Below.

What is My Credit Utilization Rate?

In short, your credit utilization rate is a ratio or percentage of the amount of credit card debt you owe in relation to your credit limit.

For example:

Credit Limit $10,000
Current Credit Debt* $2,500
Quick Math 2,500 / 10,000 = 0.25
CREDIT UTILIZATION RATE 25%

*on this particular credit card

Why Does it Matter?

Your credit utilization rate is factored in pretty heavily into the calculation of your credit score. According to Experian, it can impact almost as much as 30% of your score!

Having a low utilization rate looks good. More specifically, it looks like you’re good at responsibly managing your debt and not overspending.

How Low Should I Go?

The general recommendation is to keep it under 30%. If it gets too close to your limit, it looks like a red flag.

I Have a Pretty High Rate Month-to-Month with My Regular Spending!

Yikes, it sounds like your credit limit isn’t high enough! Worry not. You can request a credit limit increase from the card issuer.

If you’ve been a customer of theirs for a while, typically your limit will continue to increase over time and with good repayment habits. If you’re new to the company, but you have excellent money management skills and can prove it, they’ll likely work with you on the limit.

I Have More Than One Credit Card

So do a lot of people. Here’s how that factors in:

Your utilization rate is calculated the same way for the total of your cards as is it for one card. Let’s say you have 3 credit cards. Here’s a visual like the one above to illustrate it.

  Card 1 Card 2 Card 3 TOTALS
Credit Limit $10,000 $5,000 $3,000 $18,000
Credit Debt $2,500 1,250 $500 $4,250
Quick Math       4,250 / 18,000 = 0.2361
CREDIT UTILIZATION RATE     23.6%

The Moral of the Story is this: Keep an Eye on Your Ratio

Having more than one credit card can be super useful if you aren’t inclined to max them all out. Just because you have a high limit, doesn’t mean you should go anywhere near it. REMEMBER: the magic number is 30%. Happy spending!

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