Credit card video: What is a credit utilization ratio?


A finance expert explains what a credit utilization ratio is and how it affects your credit score.

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Credit utilization ratio

Gail Cunningham: Well there’s something called the credit utilization ratio, and that’s nothing more than fancy talk for how much you owe relative to your credit limit. Now, let’s give an example here. Say you have a credit limit of $5000, and you owe $2000. And suddenly you’re on a vacation, you’re on a trip for work, and you pay that monthly payment late. The lender then can swoop in and lower your credit limit.

Let’s say they cut it in half, and suddenly you owe $2000 relative to a $2500 credit limit. Very different ratio. What does that matter? Negatively impacts not only your borrowing power but that credit score. So again, you have got to protect what you have now and treat it responsibly

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