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  • May

What is Credit Utilization Ratio & Its' Impact On Credit Scores?

Learn what a credit utilization ratio is, why it impacts your credit score & what is considered a good credit utilization ratio.


credit utilization ratio

What is credit utilization ratio?


Credit utilization ratio is the current credit balance divided by your credit card limit. It tells you how much available credit you are using. For example, if you have a balance of $500 and your credit limit is $1,000, your credit utilization is 50%.


What is a good credit utilization ratio?


The general rule of thumb is 30% or lower. It shows that you're using a small amount of your available credit, which indicates that you're more likely to be able to pay it off. Anything above a 50% credit utilization ratio is considered detrimental and will have an impact on your credit score.


How does credit utilization impact your credit score?


Credit utilization makes up about 30% of your FICO credit score, so it has a pretty big impact on your credit score. Again, the lower your credit utilization, the better. Make sure that you stay below the 30% by the time your statement closes each month. Learn more about what makes up a credit score calculation.

When does your credit utilization get calculated by the credit bureau?


Each banks report your credit information at different times throughout the month, so make sure you do your research beforehand. For example, Bank of America reports to the credit bureau about 3 days after your statement closes. If you want your credit utilization to be at a certain level, make sure to pay off your statement balance prior to when the statement closes. Give yourself 1-3 business days for the payment to fully process to see the impact on your statement.


Interested in learning more about spending and credit? You might like our other 2 blog posts:

The right way to use a credit card and 3 steps to control spending.

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