Question: I understand that your credit score is affected by the percentage of your available credit that you use. However, does this reflect the total percentage of the total available, or is it specific to each line of credit? Gabriel, Somerville, MA
Answer: The answer on the credit utilization ratio is ... both. The credit utilization ratio looks at the difference between your total balances and your total credit limit (with the biggest impact coming from your credit cards).
The calculation also figures the ratio for each card into the formula. That’s why it's best to have several accounts with low balances (preferably with the credit card tab paid off in full each month) compared to fewer accounts with but with higher balances. The credit utilization ratio accounts for nearly 30 percent of the credit score. A useful rule of thumb is that it's financially smart to keep your utilization ratio at 30 percent and under. It's far better if it’s 10 percent and less.
You can get learn much more about the credit utilization ratio in Credit Card Utilization, Defined and Demystified by John Ulzheimer, president of consumer education at SmartCredit.com (among other things). Credit maven Liz Pulliam Weston offers a clear explanation of the ratio and how to think about it in her latest book, The 10 Commandments of Money: Survive and Thrive in the New Economy.
Addendum: In an earlier version of the story, I wrote that the "credit utilization ratio accounts for 30 percent of the credit score." One reader questioned whether the credit utilization ratio is 30 percent of the score, calling that figure "a myth." So I talked to the people at Fair Isaac, creators of FICO. Their statement: "The credit utilization ratio is nearly 30% of a person's credit score." I've changed the copy to reflect their wording.
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