When it comes to finances, maintaining good credit card usage is essential. This score helps to determine your credit rating, which in turn helps banks and lenders understand whether they think you are someone worth lending money to.
If you want to buy a house or a car soon, you'll need good credit. And to make sure you have good credit, you'll need a credit utilization calculator.
If you want to get out of debt and join the millions of people Americans with credit scores above 700The initial step is to know your credit utilization rate.
What is credit utilization?
Credit utilization is a ratio of the amount you owe on all your accounts to the proportion of credit you have available.
In simple terms, it's a way for banks and credit card companies to know how creditworthy you are. If your credit utilization score is high, your credit score will go down.
The best way to monitor your credit utilization is to stay out of debt. If you have credit cards or other debt, you'll need to calculate your credit card usage. This will help you know if you have too much debt and if you need to cut costs.
How is credit utilization calculated?
You can calculate your credit card usage using a simple formula. Take your total credit card balance and divide it by your total credit limit. Then multiply that number by 100 to find the percentage.
If you have more than one credit card, you may need to get organized first. Make sure to include your credit cards in your calculations.
You can do this easily by getting the latest statements from your credit card providers. You should be able to get them online through your account, but a paper statement works just as well.
Once you have all of your credit card statements, identify the current balance and credit limit for each card (you can call the company if the limit isn't listed).
What is the ideal credit utilization ratio?
So how can you understand if your credit utilization ratio is high enough? Experts often recommend that it be not exceeding 30%But those with high credit scores tend to have a ratio below 10%.
For example, a credit utilization score of 69% would be quite high and would also indicate that you should cut back on your credit card usage and start paying off your loans.
If you have a low credit utilization ratio, banks take this as an indication that you are good at managing your money and debts. A high ratio can be a red flag to lenders that you are not good at managing your finances.
How does a high credit utilization ratio impact your credit?
The use of credit represents precisely 30% of FICO credit scoreThe higher your credit utilization, the worse your credit will be. That's why it's important to have a low credit utilization score (learn more about how your FICO score affects your finances).
Other components that go into determining your credit score include payment history (35%), length of credit history (15%), new credit (10%), and credit mix (10%).
Credit Utilization Calculators
To calculate your credit card usage score, you can do it manually with paper and pen or with a credit usage calculator that you set up in a spreadsheet.
Whether you do it by hand or online, you need to keep all your paperwork and accounts organized. Make sure you have each and every credit card statement, and then use this easy formula to calculate your employment ratio:
Total amount owed / total credit line * 100
For example, let's say you have three credit cards, one with a limit of $600, one with a limit of $1.200, and one with a limit of $800. Let's say you have $300 on the first, $700 on the second, and you've used up the third.
That means you owe a total of $1.800. Divide that figure by your credit limit of $2.600 and multiply by 100. You'll get a credit utilization score of 69%.
Conclusion
If you want to know if you have too much credit card debt, you can easily find out by calculating your credit utilization score. Since this is a very high proportion of your credit score, it is essential to keep it low if you are ever going to get a home loan, a car loan, or even a business loan.
Keep an eye on your usage score and make sure you pay off your debts as soon as possible. Want to know more about how your credit is doing? Don't forget to check Check out our free course on how to improve and maintain your credit
My name is Javier Chirinos and I am passionate about technology. Ever since I can remember, I have been interested in computers and video games, and that passion has turned into a job.
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