Importance of Credit Utilization in Maintaining a Good Credit Score
Credit utilization is a key factor in maintaining a good credit score. It refers to the amount of credit you use compared to your credit limit. Simply put, it is the ratio of your outstanding credit card balances to your total available credit limit.
Your credit utilization ratio plays a critical role in determining your credit score. Credit scoring models, such as FICO and VantageScore, consider credit utilization as one of the most important factors when calculating your credit score.
1. It affects your credit score
2. High utilization can signal financial distress
3. Low utilization shows responsible credit management
4. Utilization affects credit limit increases
Here are some tips to help you maintain a low credit utilization ratio: