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

Example Sentences

It’s possible you won’t get a high-enough ceiling to handle your project — and even if you do, adding a large new expense to a credit card could hike your credit utilization ratio, which also has consequences.

From Seattle Times

Also, the balance transfer could alter your credit utilization ratio, which can negatively affect your credit score.

From Washington Post

The credit-scoring algorithm looks at the credit utilization ratio for each active account and, separately, a person’s credit usage for several accounts together.

From Washington Post

“It should lower your overall credit utilization ratio because you have more credit, but also you’re paying down your balance more quickly,” Rossman said.

From Washington Post

The more credit you have available to you, the lower your credit utilization ratio is.

From Slate

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