A credit utilization ratio is the relationship between how much someone charges on a credit card and their available credit line. For example, $500 of charges on a credit card with a $5,000 maximum limit equals a credit utilization ratio of 10%. If you charge more than 50% of your available credit, you are likely to lower your credit score. Of course, if you make a one-time large purchase and pay it off the following month, the damage will be temporary. The lower the credit utilization percentage, the better (for example, a 30% credit utilization ratio versus a 60% ratio). Credit utilization ratios comprise about 30% of FICO credit scores, the most common type of credit score used by lenders.
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