The credit utilization ratio is an important part of your credit health. This ratio shows the percentage of your credit that is being used. Credit utilization affects your credit score as much as the level of debt you carry. It makes up 30% of your credit score and is the second largest factor in the assessment, after payment history.
Calculating Credit Utilization
Calculating your credit utilization is relatively straightforward. It only takes a few minutes and some basic math.
You will need a copy of your most recent credit card billing statement (or all billing statements if you wish to calculate your total credit utilization). You can also log into your online account or call your credit card customer service to find out your latest balance and credit limits.
A recent copy of your credit report can also be helpful as it will include all of your account information in one place. Additionally, the credit utilization that affects your credit score is based on the information in your credit report, which may differ from your current balance.
Section Balance on Credit Limit
Find your current balance and credit limits on your most recent credit card billing statement. If your credit limit is not listed, you can call credit card customer service using the number on the back of your credit card to find out. For credit cards without a predetermined credit limit, the card issuer may report the highest balance charged in place of a credit limit.
Note: Divide your total balance by your credit limit, then multiply that number by 100. The result is your credit utilization as a percentage.
Example of Calculating Credit Utilization
Let’s say your credit card balance is $600 and your credit limit is $1000. You will divide 600 by 1000 to get 0.60. Then multiply 0.60 by 100 to get 60%.
If you want to calculate your credit utilization for all your accounts, first add up all the balances. Then add up all the credit limits. Divide the total balance by the total credit limit and multiply the result by 100. The result is your overall credit utilization percentage.
Let’s say you have the following credit card balances and credit limits:
- Credit Card A Balance: $655, Credit Limit: $1000
- Credit Card B Balance: $1256, Credit Limit: $4000
- Credit Card C Balance: $890, Credit Limit: $3000
- Total: Balance $2801, Credit Limit: $8000
To calculate the total credit utilization for these accounts, you can divide $2801 by $8000 to get 0.35 (after rounding). Then multiply the result by 100 to get 35%.
How Your Credit Utilization Changes
Your credit utilization can change when your credit card issuer updates your credit card balance with the credit bureaus. Changes in your credit limits, balance transfers, purchases, payments, and opening new accounts will also affect your credit utilization.
Tracking daily or even monthly changes in your credit utilization can be challenging, especially if you have multiple credit cards. You can best manage your credit utilization by keeping your credit card balances below 30% of your credit limit. But the lower the ratio, the better: According to Experian, one of the three major credit bureaus, the average credit utilization ratio for someone with a credit score over 800 is 11.5%.
Keep
By conducting a periodic check on your total credit utilization to ensure you are managing your credit cards well.
Frequently Asked Questions (FAQs)
How do you calculate a 30% credit utilization ratio?
You can work backwards through the equation to find out how much debt you can accrue before exceeding the 30% threshold. Let’s say you have a total credit limit of $10,000. In this case, you would multiply 10,000 by 0.3 to get $3,000. As long as you keep your total debt level below $3,000, your credit utilization ratio will not exceed 30%.
How can I dispute my credit utilization ratio?
If you recently paid your credit card bill, you may need to wait some time for that to reflect on your credit report. If the debt level still appears inaccurate after more than a month, check with your credit card company to see if they have updated your account with the credit bureaus. If they have, you will need to dispute the information with each credit bureau. You can dispute the information online with TransUnion here, or with Equifax here, or with Experian here. You can also dispute errors directly with your credit card company if they do not help you correct your report.
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editing process to learn more about how we check facts and maintain the accuracy, reliability, and credibility of our content.
Equifax. “How Credit History Affects Credit Scores.”
Experian. “Credit Score 800: Is it Good or Bad?”
Source: https://www.thebalancemoney.com/how-to-calculate-your-credit-utilization-ratio-960473
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