Credit to Debt Ratio Calculator
Calculate your credit utilization rate to understand its impact on your credit score.
What is the Credit to Debt Ratio?
The credit to debt ratio, more commonly known as the credit utilization ratio, is a metric used by credit bureaus to determine how much of your available revolving credit you are currently using. It is the second most important factor in calculating your FICO score, accounting for approximately 30% of the total calculation.
(Total Debt Balances ÷ Total Credit Limits) × 100 = Credit Utilization %
Why Your Utilization Percentage Matters
Lenders use this ratio to gauge your financial responsibility. A high ratio suggests that you may be overextended and at a higher risk of defaulting on payments. Conversely, a low ratio indicates that you are managing your debt effectively and not relying too heavily on borrowed funds.
Realistic Examples
- Example A: If you have a credit card with a $2,000 limit and a $400 balance, your ratio is 20% ($400 / $2,000).
- Example B: If you have three cards with combined limits of $10,000 and total balances of $6,000, your ratio is 60% ($6,000 / $10,000).
Understanding the Results
While opinions vary slightly among financial experts, the general benchmarks for credit utilization are:
- Under 10%: Excellent. This is common among individuals with the highest credit scores.
- 10% to 30%: Good. This is the recommended range to maintain a healthy score.
- 31% to 50%: Fair. You may see a slight drag on your credit score.
- Over 50%: Poor. This can significantly damage your credit score and signal high risk to lenders.
How to Improve Your Ratio
To lower your credit to debt ratio, you can either decrease the numerator (your debt) or increase the denominator (your credit limit). Strategies include making multiple payments throughout the month, requesting a credit limit increase without increasing spending, or keeping old accounts open even if you don't use them frequently.