Utilization Rate and Credit Score
Credit Card Utilization and Credit Score Explained
Utilization Rate and your credit score go hand in hand.
Calculating Utilization Rate
You take the open balance for a credit card and you divide by the credit limit.
- Credit Card 1: 60000/10000 then multiply by 100 = 60%
- Credit Card 2: 4000/6000 then multiply by 100 = 66.67%
- Credit Card 3: 7000/8000 then multiply by 100 = 87.50%
Utilization Rate and Credit Score
The higher the utilization, the lower your credit score is. For credit score purposes, it will look at the credit cards individually and all together.
- CC1 is 60%
- CC2 is 66.67%
- CC3 is 87.50%
- Total 17000/24000 multiplied by 100 = 70.83%
Ideally you’d want the utilization for all of them to be at 30%, even better at 10% for each credit card and for the total in order to get the best credit score possible.
Essentially this means that you are not depended on credit cards and you manage your money.
I believe this is the same for loans, but I am not sure how loans affect credit score as of June 2024, which is the time of me writing this post.