How to calculate your credit utilization rate
Your credit utilization rate is the amount you owe on all of your revolving accounts, such as credit cards, compared to your total available credit, expressed as a percentage. This is important because it is one of the most important factors in your credit rating.
Experts suggest using no more than 30% of your limits, and less is more. Overload your cards, especially if you maximize them, is associated with higher credit risk. This is why running up to your cards will lower your score.
You can calculate the credit usage yourself using this formula:
Add up the balances of all your credit cards.
Add up the credit limits of all your cards.
Divide the total balance by the total credit limit.
Multiply by 100 to see your percentage credit utilization rate.
You can also use the credit usage calculator below to calculate it for you, or sign up for a free weekly credit score update that shows your usage.
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Calculate your credit utilization rate
There are two types of credit utilization ratios: by card and global.
Card usage measures the credit limit of each card you use, while overall usage takes into account all of your cards and their limits.
Enter the balance and credit limit for up to three cards in this calculator to see your card and overall usage numbers:
By card versus the whole – what is more important?
Card and global usage rates are important. Credit scores can factor in the ratio in two ways – for each card and overall.
Why is it important to know this: If you are trying to counter the negative effects of a credit card as much as possible by opening a new card and by keeping his balance at $ 0, the high card usage rate to the max can still hurt your score.
If you avoid using more than 30% of the credit limit on a card, the overall usage takes place on its own.
There are strategies you can use to reduce your credit usage and make sure it stays below the recommended amount. The less available credit you use, the better your credit score.
Work towards a good credit rating will make it easier for you to benefit from the best rates on loans, insurance policies and other financial products.
Register to get your free score and credit report by NerdWallet. The information is updated weekly and the factors affecting your score are broken down to make them easier to understand.