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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.

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Category: Consumer Tips
Posted on March 20, 2013 at 11:35 AM | Permalink

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