What Is Credit Utilization?

Credit utilization is a crucial factor in determining your credit score. It represents the percentage of your available credit that you are currently using on revolving credit accounts, such as credit cards. A lower credit utilization ratio is generally better for your credit score, as it indicates that you are not overly reliant on credit.

Which Accounts Factor Into Credit Utilization?

Credit utilization is calculated using revolving credit accounts, which include:

• Credit cards
• Personal lines of credit
• Home equity lines of credit

It’s important to note that installment loans, such as personal loans, student loans, mortgages, and auto loans, do not factor into your credit utilization ratio.

How to Calculate Your Credit Utilization Rate

Calculating your credit utilization rate is straightforward. Here’s how you can do it:

Calculating Individual Revolving Account Utilization

To find the utilization ratio on a single card:

1. Identify the card’s most recently reported balance and credit limit from your credit report.
2. Divide the balance by the credit limit.
3. Multiply the result by 100 to get a percentage.

Calculating Overall Revolving Credit Utilization

To find your overall utilization:

1. Add the balances and credit limits from all revolving credit accounts.
2. Divide the sum of the balances by the sum of the credit limits.
3. Multiply the result by 100 to get a percentage.

How to Reduce Your Credit Utilization Rate

Lowering your credit utilization rate can improve your credit score. Here are some strategies to consider:

• Make fewer credit card purchases: Reducing your spending on credit cards can help lower your balances and utilization rate.
• Make early credit card payments: Paying off your balance before the billing cycle ends can result in a lower reported balance.
• Increase credit card limits: Requesting a credit limit increase from your card issuer can lower your utilization rate if your spending remains the same.
• Apply for new credit cards: While this can increase your available credit, be cautious as new accounts can impact your credit score in other ways.

Additionally, avoid closing credit cards or lines of credit, even if you don’t use them frequently, to maintain a higher amount of available credit.

Get Expert Mortgage Services from O1ne Mortgage

At O1ne Mortgage, we understand the importance of maintaining a good credit score, especially when it comes to securing a mortgage. Our team of experts is here to help you navigate the complexities of credit and mortgage services. Contact us today at 213-732-3074 for personalized assistance with all your mortgage needs.