Debt & Credit

Credit Utilization Ratio

The percentage of available credit you're using, calculated by dividing total credit card balances by total credit limits.

Also known as: credit usage, utilization ratio, credit card utilization

What You Need to Know

Credit utilization is the second-most important factor in your credit score (after payment history), accounting for 30% of your FICO score. It measures how much of your available credit you're using.

Formula: (Total Credit Card Balances ÷ Total Credit Limits) × 100

Example: You have three credit cards:

Card 1: $500 balance, $2,000 limit
Card 2: $1,000 balance, $5,000 limit
Card 3: $0 balance, $3,000 limit
Total: $1,500 ÷ $10,000 = 15% utilization ✅

Credit Score Impact:

Under 10%: Excellent
10-30%: Good
30-50%: Fair (score drops)
50%+: Poor (major score damage)

Quick Fix: Pay down balances or request credit limit increases to lower utilization instantly.

Sources & References

This information is sourced from authoritative government and academic institutions:

consumerfinance.gov
https://www.consumerfinance.gov/ask-cfpb/what-is-a-credit-utilization-rate-en-1597/

Put your knowledge into action with these interactive tools:

Credit Score Impact Calculator

See how credit utilization and payment history affect your credit score

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Credit Score Simulator

Model how paying down debt, opening or closing cards, or missing payments can change your credit score

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APR (Annual Percentage Rate)

The total yearly cost of borrowing money, including interest and fees, expressed as a percentage.

Amortization

The process of paying off a loan through regular payments that cover both principal and interest.

Annual Fee

Yearly charge for having a credit card—$0 to $550+. Premium cards charge fees but offer rewards that can exceed cost for high spenders.

BNPL (Buy Now, Pay Later)

A short-term financing option that lets you split purchases into installment payments (usually 4 payments over 6 weeks) with little or no interest—if you pay on time.