How FICO scores look at credit card limits

Your FICO® score assesses your risk based on the information on your credit report. An important factor is the category Amounts Owed, which accounts for roughly 30 percent of a typical person's FICO score.

Information about your credit limit falls into this category. However your FICO score does not consider your credit limit by itself. Instead, the FICO score considers your credit limit when determining your "credit utilization rate." Utilization means the amount of your available credit that you are using at the time your score is calculated.

Credit utilization rate is calculated by dividing an account's outstanding balance by its credit limit.

For example, say that Alice has a credit card with a $20,000 credit limit and a $10,000 balance. Alice's credit utilization rate on that account is 50 percent ($10,000 balance divided by $20,000 limit equals 0.50).

Credit utilization rate has proven to be extremely predictive of future repayment risk. So it is often an important factor in a person's score. Generally speaking, the higher your utilization rate is, the greater is the risk that you will default on a credit account within the next two years.

That's why it's always good advice to keep your credit card balances low – the lower the better. That helps ensure that your credit utilization rate stays low. More tips.

Was this article helpful? Give us feedback

FICO® Score

The Score That Matters®

FICO Scores are the standard credit score in the US, used in more than 90% of lending decisions. Learn more

Offers from our partners

Credit Cards Center
   

Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.

Credit card ratings: Editors from CardRatings.com rate credit cards objectively based on the features the credit card offers consumers, the fees and interest rates, and how a credit card compares with other cards in its category. Ratings vary by category, and the same card may receive a certain number of stars in one category and a higher or lower number in another.

The ratings are the expert opinion of the editors from CardRatings.com, and not influenced by any remuneration their website may receive from card issuers.


myFICO is the consumer division of FICO. Since its introduction over 25 years ago, FICO® Scores have become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use FICO Scores to make consumer credit decisions.

>> About myFICO
FICO Score - The Score that matters
Fair Isaac Corporation is a BBB Accredited Financial Service in San Rafael, CA
FOLLOW US Social Media Facebook Twitter Pinterest Google+