Utilization Ratio

Why it matters

Utilization is calculated both per card and across all your revolving accounts combined. Scoring models generally view lower utilization more favorably, and the figure they use is usually the balance reported on your statement, not necessarily what you owe on any given day. Because the balance is often reported once a month, paying down a card before its statement closes can lower the utilization that gets reported. Utilization has no memory: it reflects your most recent reported balances rather than your past, so it can change from month to month. Installment loans like auto or student loans are handled differently and are not part of revolving utilization.

Example

Dev has one credit card with a $5,000 limit and a $2,500 balance reported on his statement, putting his utilization at 50 percent. The next month he pays the balance down to $500 before the statement closes, so the card reports 10 percent utilization instead. Nothing about his past changed, but the lower reported balance is what his score reflects now. His car loan balance is separate and does not factor into this revolving ratio.