How your credit utilization ratio is calculated
The calculation of your credit score combines a wide-angle view of your total combined credit utilization -- including any authorized credit card accounts -- with a close-up view of each individual credit card account.
FICO says it takes that approach in order to get the most accurate view possible of a person's credit utilization, or their existing debt levels compared to their available lines of credit. As you already know, FICO's scoring model -- by far the most widely used in the United States -- pays close attention to that ratio, and you're wise to do the same.
"The utilization rate is an important indicator of lending risk. A person who is charging to the limit on their credit cards is far more likely to suddenly have repayment problems than a person who uses their credit cards sparingly," says Rod Griffin, director of public education with credit bureau Experian. For credit scores, "the lower the utilization rate, the better," Griffin says.Read more