A consumer’s credit usage ratio has a monumental impact on their overall FICO score. As shown on the FICO chart, this section weighs in at a whopping 30% of your total score. By definition, the credit usage ratio is a ratio of a consumer’s debt versus their credit. Thus, the closer you get to your total credit limit, the worse you score in your section. Using only a small fraction of your available credit is favorable to FICO calculations. Using a significant portion will decrease your score potential. Crossing your credit limits should be avoided at all costs!
The calculations for your credit usage ratio are fairly simple. To find your credit usage ratio, you simply divide your balances by your credit limits. This decimal is then multiplied by 100, to arrive at an easier percentage. Shown another way, your ratio is equal to [(balance)/ (credit limit)] *100. For example, if you have a balance of $300 on a $1000 limit credit card, your ratio is [(300)/ (1000)]*100, or 30%.
An ideal consumer will keep their balances much lower than their credit limits. Specifically, it is a general rule that your balances should not exceed 30% of your credit limit. While this may not always be possible, balances above 30% are a sliding scale. That is, even if you are above 30%, the lower the balance the better!