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Credit Utilization Ratio: What it Is and How to Calculate it
Learn about credit utilization, which plays a part in 30% of your FICO credit score.
I’m very disappointed in Equifax Scoring System. I have four credit cards I usually pay off entire balance at end of each month. Equifax knocked off 7 points of my credit score. The other two Credit Bureaus did not do that. And yes this card is listed on all three agencies. What can I do about it?
Hi Sarah,
Thanks for getting in touch with Finder. I’m sorry to hear about your situation. I know how frustrating when your score gets lower.
It is true that credit bureaus gather almost the same type of information about your financial history, there is a slight difference in how they come up with your score. It is a matter of how they interpret your data. Each bureau has its way of collecting and ranking data and determine your creditworthiness. Because of this, a slight difference is expected.
What you can do is directly get in touch with Equifax. I’m sure that they are more than willing to address your concern.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
Hi.
Im trying to improve my credit score. Have a capital one card with £200 limit.
Ive just been accepted for a platinum card with £3,000 limit and low apr.
Is it better to close the capital one card or keep it to improve my score? Thanks
Hi Laura,
Thanks for reaching out.
Using your credit utilization ratio is one of the ways to improve your credit score. The thing to do is to keep an eye on your balances, ensuring that they are under 30% of your limit.
Meantime, when you close a credit card, the amount of credit available to you goes down — causing your credit utilization to go up. Closing an old credit card can make your credit history seem shorter than it actually is, lowering your credit score slightly.
Hope this helps,
Joanne
Two questions
1. Let’s say I use my credit card for a $300 couch on day 1, pay it off on day 2. Then on day 5 I use my credit card for a $300 fridge. The rest of the month I don’t purchase anything using my credit card. Let’s say I have a Max credit limit of $1000. Does this mean my credit utilization is 30% or 60%?
2. Let’s say I use my credit card for 1 month and spend $500. If I pay off the $500 on the last day of the month, is this good or bad? Do you need some of the credit you owe to roll over to the next month to establish a credit history? Would I have better credit if I rolled over $100 compared to $1 I would owe?
Hi Christina,
Thanks for your questions.
For your first question:
Essentially, your credit utilization rate is determined by how much debt you are carrying against your credit limit. So if you’ve paid off the first $300 in your account as early as the next day and your card issuer will roll that $300 back to the $1000 limit you have, your utilization will only be 30% if you charged another $300 (with no other purchases) and have not paid that back until your due date.
For your second question:
1. Let’s say I use my credit card for 1 month and spend $500. If I pay off the $500 on the last day of the month, is this good or bad?
When you are paying off all your balance before your statement closing date, that can benefit well to your history and credit score.
2. Do you need some of the credit you owe to roll over to the next month to establish a credit history? Would I have better credit if I rolled over $100 compared to $1 I would owe?
Basically what affect your credit history/score are the negative behaviors such as not paying your bills and debts on time and applying for so many other forms of credits in just a short period of time. Moreover, owing more than 30% of your credit card limit could also result to a lower rating even if you pay off your balances each month.
Please note though that credit card companies generally report to the credit agencies once a month. They’ll will report to the bureaus whether your account is in good standing and whatever balance you have on the card. So generally, your score is calculated based on the information you have in your file.
Cheers,
May