What is Credit Utilization, and Why It Matters
#CreditTip
Do you use credit cards?
Do you know what your credit utilization is?
Credit utilization is the percentage of your total available credit that you are currently using. It is calculated by dividing your total credit card balances by your total credit limits and multiplying by 100 to get a percentage.
For example, if you have a credit card limit of $10,000 and your current balance is $2,000, your credit utilization ratio would be 20% ($2,000 / $10,000 x 100).
Utilization is solely for revolving credit accounts and can include credit cards, personal lines of credit and even home equity lines of credit.
A lower credit utilization ratio is generally better for your credit score, as it indicates that you are not heavily reliant on credit and are managing your credit responsibly. Most experts recommend keeping your credit utilization below 30%. The closer to zero the better.
Keep in mind the total utilization as well as the individual account utilization can affect your credit scores.
One reason why you need to be cautious when closing cards is because it may affect your Credit Utilization. Especially if you are closing a card with a zero balance and 100% available credit.
However, if you do not plan to rely on your credit score anytime soon, you may consider closing the card if you have no intention of using it.
Have questions? Let’s chat! CLICK HERE to schedule your Personal Financial Coaching session.
Lisa Atkinson
TFCU | Personal Financial Coach
latkinson@tucsonfcu.com
As a Personal Financial Coach, I do not provide legal or tax advice. Tucson Federal Credit Union does not guarantee that this service will achieve any particular objective or outcome. For any legal advice, please seek the advice of an attorney or tax professional.
