There are five major factors that influence your credit score: payment history (35%), level of debt or credit utilization (30%), the age of credit (15%), mix of credit (10%), and credit inquiries (10%). Credit utilization has a big influence on your credit score, but what is it and how can you manage it to get the best credit score?
What is credit utilization?✅
Credit utilization is the ratio of your credit card balances to credit limits. It measures the amount of your credit limit that's being used. For example, if your balance is £300 and your credit limit is £1,000, then your credit utilization for that credit card is 30%.
To calculate your credit utilization simply divide your credit card balance by your credit limit then multiply by 100. The lower your credit utilization, the better. A low credit utilization shows you're only using a small amount of the credit that's available to you.
Your credit score including your credit utilization is calculated based on the information on your credit report. Because credit card information is updated on your credit report based on billing cycles and not real time, your credit score may not reflect the most recent changes to your credit card balance and credit limit. Instead, the balance and credit limit of your last credit card account statement used to calculate your credit score.
How credit utilization & scores work✅
First, it scores the credit utilization for each of your credit cards separately. Then, it calculates your overall credit utilization, that is, the total of all your credit card balances compared to your total credit limits. A high credit utilization in either category can hurt your credit score.
Keeping your credit utilization on all your cards below 30% will boost your credit score as it indicated you are not so reliant on credit.