A Way to Describe Credit Usage....CUR or this cute dog
Your credit utilization ratio is essentially a measurement of how much of your credit you’re actually using. More accurately, how much of your revolving credit you’re using on a regular basis.
For most people, revolving credit consists primarily of credit cards, but lines of credit are also considered revolving credit. Revolving credit differs from what is called installment credit in that it doesn’t grant you a one-time lump sum of credit the way, say, a $10,000 car loan would.
With revolving credit, you determine the amount you’ll borrow against your credit limit—and you may keep borrowing against that limit until you hit it, so long as you continue to make consistent, on-time payments of at least the minimum amount due each payment period.
This ability to keep on borrowing and increasing your outstanding balance with revolving credit is why potential lenders are so concerned with your credit utilization ratio. Because you don’t have to re-apply for more credit with revolving credit, it’s easy to get overextended quickly. Your credit utilization ratio measures just how extended you are with an easy-to-understand percentage.
So in credit basics it's
CUR = THE SUM OF YOUR OUTSTANDING REVOLVING CREDIT BALANCES ÷ THE SUM OF YOUR REVOLVING CREDIT LIMITS
Let’s say your revolving credit consists of three separate credit cards with the following credit lines and outstanding balances:
CARD #1: $1,000 credit limit; $300 outstanding balance
CARD #2: $3,000 credit limit; $500 outstanding balance
CARD #3: $2,000 credit limit; $400 outstanding balance
In the above example, the sum of your outstanding balances ($300 + $500 + $400) would be $1,200.
The sum of your credit limits ($1,000 + $3,000 + $2,000) would equal $6,000.
And your credit utilization ratio would be:
$6,000 = .20 or 20%.
So, what’s considered a “good” CUR? From the perspective of potential lenders, the lower your credit utilization ratio, the better. This is because, to them, a low credit utilization ratio suggests a lower risk of you overextending yourself and defaulting on your debt. So logic would dictate that a 0% CUR is optimal, right?
It’s better to have a positive, albeit low, credit utilization ratio. In a perfect world it would typically fall within the 1% - 9% range, but if that’s not doable (lower limits), many experts recommend keeping it below 30%.
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