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Utilization of credit and its impact on FICO score

Article Written by : Financial Haze

The infamous FICO (Fair Isaac Corporation) score take into consideration several factors including your utilization of credit. It accounts for 30 percent of your FICO score. Debt to limit ratio is key component but not the only aspect they consider. According to three main credit bureaus, Equifax, Experian and TransUnion, who keep track of your credit and generate a FICO score, they look at six different metrics including debt to limit ratio, number of accounts with balances, amount owed on all lines of credit, and the amount of the installment you pay each month.

Having a higher credit limit can help your credit score. If you have one card with a limit of $1,000 and $500 balance you owe and another card with a limit of $2,000 and $1,000 balance, your average utilization ratio is 50 percent. Raising the credit limit of one credit card can change the average ratio of your credit utilization. If the ratio changes lower, your FICO score can generally go higher. With each monthly payment you make, your utilization ratio as well as your FICO score could change. This is why the FICO score is a fluid score. Also, based on the credit bureau you may get slightly different FICO score due to variations of their calculation methods.