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How to Calculate Your Credit Card Credit Utilization Ratio

Updated on January 9, 2018
tamarawilhite profile image

Tamara Wilhite is a technical writer, industrial engineer, mother of two, and published sci-fi and horror author.

What Is a Credit Card Utilization Ratio?

The credit card utilization ratio measures what percentage of your available credit is currently being used.

Your credit card utilization ratio can be determined for a single credit card, all of your credit cards or all of your revolving lines of credit. The credit card utilization ratio or balance-to-limit ratio converts your current debt and available credit into a general percentage that is easy to evaluate compared to looking at all of your credit card accounts and credit limits to determine your creditworthiness.

When your expenses exceed your income, your credit cards may fund the difference. However, using up all of your available credit will hurt your credit score.
When your expenses exceed your income, your credit cards may fund the difference. However, using up all of your available credit will hurt your credit score. | Source

Why Does My Credit Card Utilization Ratio Matter?

Your credit card utilization ratio is a factor in the computation of your credit score. The credit card utilization ratio is roughly 35% of your credit score. A credit card utilization ratio over 30% starts to negatively impact your credit score.

A growing credit card utilization ratio or carrying a high credit card utilization ratio for a long time will hurt your credit more than a temporarily maxed out card that is quickly paid off.

Someone who consistently utilizes almost all of their credit is a credit risk, since the debtor may not be able to pay off their balances if financial trouble hits. A high credit utilization ratio also suggests that someone cannot control their spending and is consistently spending all money that comes in and all that can be borrowed.

How to Calculate Your Credit Card Credit Utilization Ratio for a Single Credit Card

A credit card with zero balance has a 0% credit card utilization ratio. A credit card that is maxed out has 100% utilization. In every other case, here are the steps for calculating the credit card utilization ratio of a single credit card.

1. Find the current credit card limit. For example, your credit card may have a limit of $5,000.

2. Determine your current balance on the credit card. In our example, the credit card currently has a $1,500 balance.

3. Divide the current credit card balance by the credit card limit. For our example, divide 1,500 by 5,000. The result is 0.30.

4. Multiple the value from step 3 to get the credit card utilization ratio as a percent. The answer from step 3, 0.30, times 100 yields 30%. This is a reasonable credit utilization ratio. Anything higher could adversely impact your credit score.

How to Calculate Your Credit Card Credit Utilization Ratio for All of Your Credit Cards

1. Create a list of all of your credit cards. Include credit cards, prepaid balance cards that are classified as credit cards, store credit cards and gas cards.

2. Write down the current balance on all of the credit cards.

3. Write down the total credit available on these credit cards.

4. Total the current balances on all credit cards.

5. Total the credit available on all of the cards.

6. Divide the total credit card balance by the total credit available on all cards. This yields your credit card utilization ratio.

7. Multiply the total credit card utilization ratio by 100 to find the credit card utilization ratio as a percentage.

Example of Multi-Card Credit Card Utilization Calculation

 
 
 
 
Credit Card
Balance
Available Credit
Credit Card Utilization
Gas Card
$250
$500
0.50 or 50%
Store Credit Card
$150
$500
0.30 or 30%
Bank Credit Card
$1000
$2500
0.40 or 40%
Total
$1400
$3500
$1400/$3500 = 40%

What Can You Do to Improve Your Credit Card Utilization Ratio?

There are only a few legal and ethical ways to improve your credit card utilization ratio.

  1. Pay down your credit cards. As the balances decrease, the ratio will go down and your credit score will improve.
  2. Open up a new credit card to increase your available credit balance. However, if you start racking up new debt, this will not help your credit utilization rate or your credit score.
  3. Ask your bank to increase your credit card limit, but do not use the newly available credit.
  4. Review your credit cards to find out if the available line of credit has been decreased. Even if your credit card balance has not changed significantly, a lender’s sudden drop in your available credit can cause the credit card utilization ratio to increase. If a lender cuts the line of credit on your credit card from $2,000 to $1,000 and you have a $1,000 balance, the credit card utilization ratio for that one card goes from 50% to 100% simply because the lender lowered the amount you are allowed to borrow.
  5. If you are going to close a credit card, roll over the debt onto a new credit card with a similar available line of credit instead of moving the balance to an existing credit card. Closing credit cards and rolling over the debt onto existing cards hurts your credit utilization ratio.
  6. Avoid closing credit cards that you have paid off unless you need to do so to save yourself from running up their balance. Closing credit cards, even those with a small credit limit, will reduce your available credit and thus increase the credit utilization ratio if all other variables are the same.

Comments

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  • tamarawilhite profile imageAUTHOR

    Tamara Wilhite 

    2 years ago from Fort Worth, Texas

    Shasta Matova I understand the practice of keeping credit card balances low while keeping cards open, but that also risks someone running up a massive balance if the card or its associated information is stolen.

  • Millionaire Tips profile image

    Shasta Matova 

    7 years ago from USA

    A credit score is so important to so many things you do in life - your insurance rates, your loan rates, etc., that it pays to find ways to keep it high. I would love to close out some of my old cards since I don't use them anymore but leave them open to keep my credit card utilization high.

  • SidKemp profile image

    Sid Kemp 

    7 years ago from Boca Raton, Florida (near Miami and Palm Beach)

    Thanks - I've worked in the field of credit counseling, and all of this is accurate, sound, financially healthy advice.

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