Credit utilization is the ratio of your outstanding credit card balances to your credit card limits. It measures the amount of credit limit you are using. For example, if your balance is $300 and your credit limit is $1,000, then your credit utilization for that credit card is 30 percent.
If you’re adding $500 per month of new charges on your card and your limit is $1,000, you’ll have a utilization rate of 50 percent.
To calculate your credit utilization, simply divide your credit card balance by your credit limit, then multiply by 100. The lower your credit utilization percentage, the better. A low credit utilization shows that you're only using a small amount of the credit that's been loaned to you.
Five major factors have an influence on your credit score:
- Payment history (35 percent)
- Level of debt/credit utilization (30 percent)
- The age of credit (15 percent)
- Mix of credit (10 percent)
- Credit inquiries (10 percent).
Regards,
Adrian
