Credit utilization ratio is a ratio that the credit rating agencies use as a tool to calculate the credit score of a borrower. If the credit utilization ratio is higher that means the borrower uses more of its allowed credit limit. The higher the credit utilization ratio, the lower the borrowers’ credit score will be.
Assume you have 4 credit cards having the following credit limits and balances due at the end of the month.
|
Credit Limit |
Balance Due |
|
|
Credit Card 1 |
$15,000 |
$6,000 |
|
Credit Card 2 |
$20,000 |
$13,000 |
|
Credit Card 3 |
$30,000 |
$21,000 |
|
Credit Card 4 |
$50,000 |
$16,000 |
|
$115,000 |
$56,000 |
Your total credit utilization for the month was $56,000 and total revolving line of credit is $115,000. The Credit utilization ratio will be ($56,000/ $115,000) = 48.79%.
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