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| What is revolving utilization? |
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Last Updated
13th of May, 2009
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Revolving utilization, also known as your “debt-to-limit ratio” or “debt utilization”, is the amount of your revolving credit limits that you are currently using. (A revolving account is an account where your monthly payment is based on your balance, which can change from month to month.)
The majority of revolving accounts are credit cards or retail store cards of some type. Home equity line of credit (HELOC) accounts are also considered revolving. Here is how you can determine your revolving utilization:
- Look at your credit reports and identify all of your revolving
accounts. Each of these accounts has a credit limit (the most you can
spend on that account) and a statement balance (the balance amount from
your last billing statement).
- Add together all the credit limits on all of your revolving accounts. We’ll call this your “Total Credit Limit".
- Add together all of the statement balances on the same revolving
accounts you just used to determine your Total Credit Limit. We’ll call
this your “Total Balances.” Total Balances should be less than your
Total Credit Limit amount.
- Now divide the Total Balances amount by the Total Credit Limit
amount and multiply that number by 100. This will yield your revolving
utilization percentage.
Example: If I have two credit cards, each with a $5,000 credit limit, my Total Credit Limit is going to be $10,000. If I have a $2,500 balance on each of those cards, my Total Balances is going to be $5,000. I divide $5,000 by $10,000 and I get 0.5. Multiply 0.5 by 100 and you get 50 percent. My revolving utilization is 50 percent.
Total Balances ÷ Total Credit Limits = Your Revolving Utilization
This is exactly how creditors and credit scoring models determine your revolving utilization. The percentage that you just calculated tells them how much of your available credit you are currently using. You want this number to be as low as possible.
Specifically, you want your revolving utilization to be at 10 percent or less in order to earn the most credit score points out of this category.
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