Credit Utilization Ratio: Could It Be Lowering Your Credit Score?

This post was contributed by our Financial Literacy Movement partner

The credit utilization ratio is one of the most misunderstood and often totally unknown concepts in credit scoring. However, it plays a very significant role in your credit score as it related to how you manage debt.

The simplest explanation is that credit utilization is the ratio between the credit you are using (credit balance) and the credit you have available (credit limit). The lower your credit utilization ratio, the more positively your credit will be scored.

Grab your credit report, a pen and paper, your calculator and watch this quick video to start improving your credit utilization.

Credit utilization is one of the simplest ways to start improving your credit risk profile. Simply using your credit cards a little less each month or starting to pay down your credit card balances can have an immediate positive impact on your credit.

  • Joseph Matthews

    Why does utilization play such a big part? Shouldn’t the fact that it is paid off each month play a bigger part? I’ve paid my credit card off every month since 93, but under this scenario, I am using 50-75 percent of my credit utilization and my credit score is being dinged as such, but my credit card company won’t increase my credit line. There should be rules that force a credit card company to raise your credit limit for folks with above 800 credit scores and never missed a payment.

  • Casey Bond

    Your payment history does, technically, account for the biggest portion of your score, representing 35%. However, how much debt you owe is the next most important factor in the calculation (30%) and your credit utilization ratio affects this directly. It’s great that you are so diligent about paying off your cc balance every month, and honestly, I don’t think you have much to worry about if your credit score is over 800!