Credit Card Utilization Ratios
You’ve probably seen time and time again the importance of keeping your credit card utilization ratios at or below 50%. The fact is keeping your credit utilization ratios as low as possible is just plan smart. In fact, “Consumers with FICO® scores of 800 use, on average, 7% of their available credit,” says Can Arkali, senior scientist for analytics and scores development at Fair Isaac Corp.
Now to clear up any confusion this doesn’t apply to installment loans such as auto loans, mortgages and student loans. The ratio for installment loans is known as your installment utilization ratio.
Revolving lines of credit such as credit cards is what is referred to as credit card utilization ratios. Your credit card utilization ratio is a measure of how much you owe on a credit card compared with the card’s credit limit. For example, if you have a credit card with a $10k credit limit and you currently have an outstanding balance of $5k then you currently have a 50% credit card utilization ratio on that card.
Click to continue …