It's simply the ratio of credit you owe to the total credit available to you. For instance...if you have a CC with a $1000 limit and you owe $500 on it, your utilization is 50%. It's figured simply by dividing what you owe by your total credit ceiling. 500/1000 = 50 It's generally understood that keeping this number below 50% is best.
This is why you don't randomly close accounts. Doing so increases your utilization which lowers your score.
Re: Re: utilization I would also add: 1) it only considers the credit card's "reported" limit on the report. Some banks like Cap1 do not report limits, only highest balance. So if you have a $1000 limit but have only spent $500 on it with Cap1, they will report the limit at $500. To get around this charge up to near the limit (don't go over) and then pay it down very quickly (or balance transfer). 2) ALL credit cards are summed together to figure utilization. So even though you may be 50% on one card but 25% on two others, it groups them altogether before figuring out your utilization. 3) To decrease utilization to improve your credit score, try calling your creditors and request a line increase. (try and do so without pulling a 'hard') 4) Prime utilization is 22% or below. 23% - 30% hits your FICO strongly. 30% - 50% takes a huge chunk out. >50% can affect your FICO by as much as 80 pts or more depending on your credit situation.
