Credit Utilization

Credit utilization refers to the amount of credit that a borrower is currently using compared to the total amount of credit available to them. This is typically expressed as a percentage and is an important factor in determining a borrower’s credit score.

Credit utilization is calculated by dividing the outstanding balance of a borrower’s credit accounts by their total credit limit. For example, if a borrower has a credit card with a $5,000 limit and a balance of $2,500, their credit utilization rate would be 50%.

Lenders use credit utilization as a measure of a borrower’s creditworthiness, with lower utilization rates generally being viewed more favorably. High credit utilization can indicate a borrower is relying too heavily on credit and may be at risk of defaulting on their payments.