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Friend,

Your credit utilization is important. Below is a deep dive of what credit utilization is and how to measure it.

Credit utilization measures how much of your available credit you’re currently using. It's calculated by dividing your total credit balances by your total credit limits. Lower credit utilization (ideally below 30%) is generally better for your credit score, showing lenders that you manage your credit responsibly without overextending.

Here’s a quick breakdown:

1. Calculate Credit Utilization Ratio:

   Credit Utilization Ratio=(Total Credit BalanceTotal Credit Limit)×100Credit Utilization Ratio=(Total Credit LimitTotal Credit Balance​)×100

2. Why It Matters:

   • High utilization can indicate a risk of overspending, which lenders see as higher risk.

   • Keeping utilization low (below 30%) positively impacts your credit score.

3. Improvement Tips:

   • Pay Down Balances: Reduce balances to lower the ratio.

   • Increase Credit Limits: Ask for a higher limit to help lower utilization.

   • Use Multiple Cards: Spread purchases across multiple cards to avoid high balances on a single card.

Credit utilization is important because it makes up about 30% of your credit score, making it one of the most heavily weighted factors. Here’s why it matters:

1. Shows How You Manage Debt

Lenders use your credit utilization to assess if you're using credit responsibly. A low utilization rate tells them you're not maxing out your cards and are likely a lower risk.

2. Impacts Credit Scores Significantly

Even if you pay on time, high utilization can drag your score down. For example, using 80% of your available credit—even if you pay it off—can make you look overextended.

3. Helps With Loan and Credit Approvals

Lower credit utilization can increase your chances of getting approved for new credit and can help you qualify for better interest rates.

4. Reflects Financial Discipline

It suggests that you’re not dependent on credit to get by, which is a green flag for lenders, landlords, and even insurance companies.

In short, low credit utilization = financial stability in the eyes of the system. Want a visual or chart to help explain it to others?