Your Credit Utilization Ratio (CUR), also known as credit utilization rate, is a crucial factor in determining your credit score. It represents the amount of revolving credit you are currently using compared to your total available revolving credit. Lenders and credit bureaus view this ratio as a key indicator of your creditworthiness and your ability to manage credit responsibly.
Why is Credit Utilization Important?
Impact on Credit Score: Credit utilization accounts for a significant portion of your FICO score (around 30%). A lower utilization ratio generally leads to a higher credit score.
Indicator of Financial Health: High utilization can signal to lenders that you may be over-reliant on credit, potentially increasing your risk of default.
Access to Better Terms: Maintaining a low CUR can help you qualify for lower interest rates, higher credit limits, and better loan terms in the future.
How to Calculate Credit Utilization
The formula for calculating your credit utilization ratio is straightforward:
Credit Utilization Ratio = (Total Amount Owed on Revolving Credit / Total Available Revolving Credit) * 100
In simpler terms, you add up the balances on all your credit cards and divide that sum by the total credit limits across all those cards. The result is then multiplied by 100 to express it as a percentage.
Example Calculation:
Let's say you have the following credit accounts:
Card A: Balance = $2,000, Credit Limit = $5,000
Card B: Balance = $3,000, Credit Limit = $7,000
Card C: Balance = $1,000, Credit Limit = $3,000
First, calculate the total amount owed:
$2,000 (Card A) + $3,000 (Card B) + $1,000 (Card C) = $6,000
Next, calculate the total available credit:
$5,000 (Card A) + $7,000 (Card B) + $3,000 (Card C) = $15,000
In this example, your credit utilization ratio is 40%.
What is Considered a "Good" Credit Utilization Ratio?
Excellent: Below 10% – This is ideal and shows strong credit management.
Good: 10% – 30% – Still very good, though lower is always better.
Average: 30% – 50% – This range can start to negatively impact your score.
Poor: Above 50% – High utilization in this range can significantly lower your credit score.
Very High: Above 70% – This is considered very risky and will likely have a substantial negative impact on your score.
Credit scoring models often recommend keeping your overall credit utilization below 30%, and ideally below 10%, for the best results. It's also beneficial to monitor individual card utilization, as some issuers may look at that as well.
function calculateCreditUtilization() {
var totalBalancesInput = document.getElementById("totalBalances");
var totalCreditLimitInput = document.getElementById("totalCreditLimit");
var resultDiv = document.getElementById("result");
var totalBalances = parseFloat(totalBalancesInput.value);
var totalCreditLimit = parseFloat(totalCreditLimitInput.value);
if (isNaN(totalBalances) || isNaN(totalCreditLimit)) {
resultDiv.textContent = "Error";
return;
}
if (totalCreditLimit === 0) {
resultDiv.textContent = "∞%";
return;
}
if (totalBalances < 0 || totalCreditLimit < 0) {
resultDiv.textContent = "Invalid Input";
return;
}
var utilizationRatio = (totalBalances / totalCreditLimit) * 100;
// Limit to two decimal places
utilizationRatio = utilizationRatio.toFixed(2);
resultDiv.textContent = utilizationRatio + "%";
}