Your credit utilization rate, or balance-to-limit ratio, is the total of your credit card balances divided by the total of your credit card limits, generally expressed as a percentage.
Your utilization rate is the second most important factor in credit scores. The lower your credit utilization percentage, the better it is for your credit scores. In general, the people with the highest credit scores have a utilization rate of under 10 percent. Paying down credit card debt and keeping balances low can be very beneficial to your scores.
As a rule, you never want your balances to be more than 25 — 30 percent of total your credit limits. For example, if your total credit limit is $10,000, your total revolving balance shouldn't exceed $3,000. The same applies to the individual balance on each card, which shouldn't be higher than 30 percent of that card's credit limit.
If you get above the 30 percent level of credit utilization, your scores may start to drop more significantly. Lenders often consider high credit card balances a sign that you may be overextending yourself and may have trouble repaying your debt.
Ideally, it's best to pay your balance in full each month to show that you are managing your credit well and to avoid paying interest fees or accumulating debt.
Check out the scope to hear answers to all the questions asked.
Do You Have Questions About Credit?
Join our live video chat every Tuesday and Thursday at 2:30 p.m. ET on Periscope. Rod Griffin, Director of Consumer Education and Awareness at Experian, is available to answer your questions live.
Scoped on: 12/18/2018
Want to instantly increase your credit score? Experian Boost™ helps by giving you credit for the utility and mobile phone bills you're already paying. Until now, those payments did not positively impact your score.
This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.