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Most people know that a good credit score is determined by paying bills on time and not acquiring too much credit card debt. If you are looking for debt relief, it is important to know your credit usage ratio, also known as credit utilization, because it also has a significant impact on your credit score and credit worthiness. A credit usage ratio is an accurate representation of how someone uses credit and how disciplined they are. It compares the total amount you owe on all of your credit card accounts to your total available credit limit. Credit advisors recommend that a credit usage ratio of less than 35% is a healthy amount. Watch this video to learn how to calculate your credit usage ratio to give you a clearer sense of your financial situation.
Take the total amount you owe on all credit card accounts.
$1,500 + $4,200 + $800 = $6,500
Then take your total available credit limit:
$15,000 + $10,000 + $10,000 = $35,000
Go back to your total amount owed and divide by your total available limit:
$6,500 / $35,000 = .185
Move the decimal 2 spots to the right. And you get 18.5%
A credit usage ratio of less than 50% is considered a healthy amount.
Your credit usage ratio is one of the factors used to calculate your credit score.
So yeah… it’s good to know.
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