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What Is a Credit Utilization Rate?
An important rate that has a significant impact on your FICO Score
Credit utilization rate is the amount of revolving credit one has used divided by the total amount of revolving credit one has available. It is essentially the current amount you owe divided by your credit limit. Credit utilization rate is generally expressed as a percentage. For example, if your total credit limit is $20,000 and you have used $4,000, $4,000 divided by $20,000 equals a credit utilization rate of 20%.
Your credit utilization rate impacts 30% of your FICO Score, the second largest impact after payment history. It is typically recommended to have a credit utilization rate of less than 30% because it showcases that you are not overusing a revolving line of credit. In the above example, a credit utilization rate of 20% is seen as a good thing.
When it comes to maintaining a lower credit utilization rate, it is important that you pay your full monthly revolving credit balance monthly. In doing this, you will positively impact your FICO Score long-term, putting you in a position to qualify for that lower interest rate loan for whatever you please, such as for a business, home, or car.
It is important to understand your credit utilization rate. It should be a number you are familiar with…
