Credit card utilization, often referred to as credit utilization ratio (CUR), is a critical component of your credit score. It represents the amount of revolving credit you are currently using compared to your total available revolving credit. This ratio is a key factor in determining your FICO score, accounting for about 30% of your overall score. Maintaining a low utilization ratio is crucial for a healthy credit profile.
How to Calculate Credit Card Utilization
The formula for calculating credit card utilization is straightforward:
Credit Utilization Ratio (%) = (Total Current Balance / Total Credit Limit) * 100
Let's break down the terms:
Total Current Balance: This is the sum of the outstanding balances on all of your credit cards at a specific point in time. You should add up what you owe on each card.
Total Credit Limit: This is the maximum amount you can borrow across all of your credit cards. You sum up the credit limits of each of your credit cards.
For example, if you have a total balance of $1,500 across all your credit cards and your total credit limit is $5,000, your credit utilization ratio would be calculated as:
($1,500 / $5,000) * 100 = 0.30 * 100 = 30%
A credit utilization ratio of 30% means you are using 30% of your available credit.
Why is Credit Card Utilization Important?
Lenders view a high credit utilization ratio as an indicator of financial distress, suggesting you might be over-reliant on credit. This can make you appear as a higher risk borrower. Conversely, a low utilization ratio signals responsible credit management.
Recommended Utilization Ratios
Ideal: Below 30%. Many experts suggest keeping it as low as possible, ideally below 10%, for the best impact on your credit score.
Good: 30% – 50%. This range is generally considered acceptable but could be improved.
Needs Improvement: Above 50%. This can negatively impact your credit score.
High Risk: Above 70%. This is likely to significantly hurt your credit score.
It's important to note that credit card companies report your balances to credit bureaus at different times. To get the most accurate utilization ratio, it's best to check your balances on or around your statement closing date, as this is often when the reported balance is determined.
By regularly monitoring and managing your credit card utilization, you can significantly improve your creditworthiness and achieve your financial goals.
function calculateUtilization() {
var currentBalanceInput = document.getElementById("currentBalance");
var creditLimitInput = document.getElementById("creditLimit");
var resultDiv = document.getElementById("result");
var currentBalance = parseFloat(currentBalanceInput.value);
var creditLimit = parseFloat(creditLimitInput.value);
// Clear previous results
resultDiv.innerHTML = "";
// Input validation
if (isNaN(currentBalance) || isNaN(creditLimit)) {
resultDiv.innerHTML = "Please enter valid numbers for both balance and limit.";
return;
}
if (currentBalance < 0 || creditLimit creditLimit) {
resultDiv.innerHTML = "Current balance cannot exceed the total credit limit.";
return;
}
// Calculate utilization
var utilizationRatio = (currentBalance / creditLimit) * 100;
var resultText = "" + utilizationRatio.toFixed(2) + "%";
resultDiv.innerHTML = resultText;
// Add text to explain the ratio
var explanationText = "";
if (utilizationRatio <= 10) {
explanationText = "Excellent! Your utilization is very low. Aim to keep it below 30%.";
} else if (utilizationRatio <= 30) {
explanationText = "Good! Your utilization is well within the recommended range.";
} else if (utilizationRatio <= 50) {
explanationText = "Fair. Consider paying down your balances to reduce your utilization ratio.";
} else {
explanationText = "High! Your utilization is high and could negatively impact your credit score. Focus on reducing your balances.";
}
resultDiv.innerHTML += explanationText;
}