Your credit utilization is a measure of the ratio of the amount you owe on all your recurring accounts (such as credit cards) to your total available credit (in percent).

The calculation method is as follows:

Credit Utilization = (Total credit for all credit cards / Total credit limit for all credit cards) x 100

This number is important because it tells the credit scoring company how much credit you have available. Both FICO (the credit score used in most loan decisions) and VantageScore (the main competitor) have conducted a heavyweight assessment of credit utilization when calculating ratings.

Excessive fees on your credit card (especially when you use them to the maximum) can lead to higher credit risk. This is why raising your credit card will lower your score. A low credit score makes it harder for you to get the best interest rates on loans, insurance policies and other financial products.

Calculate your credit utilization

There are two types of credit utilization: each card and overall.

The usage per card measures the amount of credit for each card you use, while the overall usage takes into account all of your cards and their limits.

Every card and the whole - which is more important?

Every card and total usage are important. Credit scores can be considered in two ways - each card and overall.

Why it's important to know this: If you try to offset the negative impact of an overdraft credit card by opening a new card and keeping its balance at $0, then the high utilization of the overdraft credit card can still hurt your score.

Most experts say you should not use more than 30% of the credit on any card. In this way, the overall use can be handled by itself.

There are a number of strategies that can be used to control your credit utilization and ensure that it is below the recommended amount. The fewer credits you can use, the better your credits will be.