Before You Cancel That Credit Card - Let's Talk Credit Utilization Ratios

First of all what is a credit utilization ratio?

- It's the 2nd most weighted item in your FICO score

- It's the ratio of your outstanding balances divided by your total available credit.

ie. $3000 of outstanding balance / $10000 of available credit = 30% utilization ratio

What is a good ratio?

30 percent to 35 percent or less

Things to consider?

The weighting of the credit utilization ratio by Fair Isaac should be considered when you think about closing a credit account. Using the example above, if you closed a credit card with $3000 of available credit, your total available credit drops to $7000. Now when we take that $3000 outstanding balances / 8000 of available credit = 42.8 percent which will probably result in a lowering of your credit score.