credit utilization ratio

[ kred-it yoot-l-i-zey-shuhn rey-shoh, rey-shee-oh ]

noun

, Finance.

1. the total amount of outstanding charges on a credit card compared to the card’s spending limit, expressed as a percentage calculated by dividing the balance due by the spending limit:

   A high credit utilization ratio, especially above 50%, often indicates that a cardholder may be spending beyond their financial means.

Word History and Origins

Origin of credit utilization ratio¹

First recorded in 1985–90

More About Credit Utilization Ratio

What does credit utilization ratio mean in credit management?

A credit utilization ratio (or rate) is the total amount of outstanding charges on a credit card compared to the card’s spending limit. It is expressed as a percentage calculated by dividing the balance due on the card by the card’s spending limit.

For example, if a person has a total of $1,250 in charges on a credit card with a spending limit of $10,000, the credit utilization ratio is $1,250 ÷ $10,000 = 0.125 or 12.5%.

A high credit utilization ratio, especially above 50%, often indicates that a cardholder may be spending beyond their financial means and this can negatively impact a person’s credit score.

Examples of credit utilization ratio in a sentence

“If you really want to improve your credit score as soon as possible, consider using an installment loan or debt consolidation loan to pay off multiple accounts with high credit utilization ratios.”
—”Bad Credit Is Scary: 5 Quick Strategies To Improve Your Credit Score” Rocket Loans. Retrieved March 15, 2020.

“The difference between how much credit you have and how much you use is called your credit utilization ratio.”
—”Bad Credit Is Scary: 5 Quick Strategies To Improve Your Credit Score” Rocket Loans. Retrieved March 15, 2020.

“A low credit utilization rate shows you’re using less of your available credit. Credit scoring models generally interpret this as an indication you’re doing a good job managing credit by not overspending, and keeping your spending in check can help you reach higher credit scores.”
—”What is a Credit Utilization Rate?” Experian. Retrieved August 21, 2020.

Other terms connected with the topic of credit utilization ratio

• ​credit
• ratio
• credit rating
• credit score
• FICO score
• credit risk
• credit bureau
• soft credit inquiry
• hard credit inquiry
• creditworthiness