What is Credit Utilization and Why it Matters

Your credit utilization is one of the most important aspects of your credit score.

Indeed, after your payment history, your credit utilization is the most important factor influencing your credit score.  For most people, credit utilization means the amount of available credit being used on a credit card.

What is Credit Utilization?

Simply put, credit utilization is the amount of money you are using on your credit card.  Your credit utilization is usually added up to include all of your credit accounts, and represented by a percentage.

Let’s say you have three credit cards:

  • Credit Card A: Credit line of $3,000, and a balance of $2,500
  • Credit Card B: Credit line of $2,000 and a balance of $1,800
  • Credit Card C: Credit line of $1,500 and a balance of $700

When all of the information is added up, you end up with with your credit utilization.

The total available credit in the above example is $6,500, and the balance used is $5,000.

To get the credit utilization, you divide how much credit you have used by your credit limit.  In this case, the credit utilization is 0.7692, or about 77% ($5,000 divided by $6,500).
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