How Credit Utilization Affects Your Credit Score

With your credit card, you can get your credit score and build a credit record. If you use your card wisely, you can also get; point or cash-back bonus on your monthly purchases, additional funds in an emergency, carry out large purchases that may take some months to pay off, and gain access to services like travel plan aid, roadside assistance, upscale airport lounges, and custodian assistance while traveling.

If your credit utilization is high, you may have a reduced FICO score on your credit report, you may be having a hard time Carrying out large monthly payments and an increasing interest rate on your card. If there is any late payment.

Your credit utilization has an effect on your credit score, so know what is credit utilization, and how to manage it to get an excellent credit rating and it’s benefits.

How Credit Utilization Affects Your Credit Score

What Is Really is Credit Utilization?

This is the ratio of your unresolved credit card balances to your credit card limit. It is used to measure the amount of credit limit you are making use of. Example, when your credit limit is $1000 and your balance is $300, then your credit utilization for that card is 30%.

Calculating your credit utilization involves dividing your credit card balance by your credit limit and multiplying by 100. A low credit utilization indicates that you are making use of the small amount of credit been given to you.

There are five major factors that have an effect on your credit score :

1) Your Payment Credit history (35 percent)

2) The age of credit (15 percent)

3) Your Level of debt/credit utilization (30 percent)

4) A mix of credit (10 percent)

5) Credit inquiries (10 percent)

Base on the current information on your credit report, your credit utilization and credit scores can be calculated. This is due to the fact that your credit card information is updated on your credit report according to the billing cycles and not in real time, although your credit score may not show the current changes to your credit limit and credit card balance.

Note that, your credit limit and the balance of your credit card account statement closing date, is used to calculate your credit score.

Ways in which Your FICO Score is Affected

These are the two ways in which the FICO scoring model looks at your utilization; it awards you score of your credit utilization differently for every of your card. And all your credit utilization is calculated, which is the sum of all your credit limit and credit card balance.

Also, your credit utilization is 23% of your VantageScore, a type of credit scoring calculation.  And your score looks at your balance as 15% and available credit as 7% of its score.  Above all, 45% of your VantageScore is influenced by the total amount of your credit card debt.

How Credit Utilization Affects Your Credit Score