DEFINITION of 'Balance-To-Limit Ratio'

The amount of money you owe on your credit cards compared to your credit limit. The balance-to-limit ratio is also called your credit utilization ratio. This ratio is important because it shows how carefully you’re managing your available credit. Credit scoring companies consider this ratio when determining your credit score, and a low ratio is better for your score than a high ratio.

BREAKING DOWN 'Balance-To-Limit Ratio'

If you only have one credit card with a $2,000 limit and a $200 balance, your balance-to-limit ratio is incredibly easy to calculate: $200 / $2,000 = 0.10. In other words, you’re using 10% of your available credit.

If you have several credit cards, the math is still easy. Just add together all of your balances and all of your credit limits, then divide your total balance by your total credit limit. For example, if card 1 has a $300 balance and a $1,000 limit, card 2 has a $400 balance and a $2,000 limit, and card 3 has a $600 balance and $3,000 limit, your balance total is $1,300 ($300 + $400 + $600) and your credit limit total is $6,000 ($1,000 + $2,000 + $3,000).

Divide $1,300 by $6,000 to get your balance-to-limit ratio: 0.22, or 22%.

Amounts owed counts for 30% of your credit score, so if you’re planning to take out a loan in the near future, you’ll want to pay careful attention to your balance-to-limit ratio. To boost your credit score, you should try to keep your balance-to-limit ratio at or below 20% on each card and overall. For scoring purposes, it doesn’t matter whether you’re paying your balance in full each month or carrying a balance; in either case, you need to keep your balance-to-limit ratio low on each card if you want to improve your credit score. For your overall financial situation, however, you should aim not only to keep your balance-to-limit ratio low, but also to pay your credit card balance in full and on time each month. That way, credit card interest and fees won’t eat into the money you have available to spend or save. Your net worth is more important than your credit score.

  1. Zero Balance Card

    A credit card on which a consumer does not owe any money because ...
  2. New Balance

    The new balance is the sum of your previous balance, payments, ...
  3. Minimum Payment

    The smallest amount of a credit card bill that a credit card ...
  4. Credit Mix

    The different categories of debt within a consumer's credit history ...
  5. Business Credit Card

    A business credit card is a credit card intended for use by a ...
  6. Secured Credit Card

    A secured credit card is a type of credit card that is backed ...
Related Articles
  1. Personal Finance

    6 Benefits of Increasing Your Credit Limit

    If you can resist the urge to overspend, then raising your credit limit could benefit you in various ways.
  2. Personal Finance

    3 Easy Ways To Improve Your Credit Score

    A better credit score can improve your financial future. How can you improve your score?
  3. Personal Finance

    Why and How to Use Credit Cards Effectively

    When used responsibly, credit cards play a big role in establishing a good credit score that can help you obtain loans, mortgages and insurance.
  4. Personal Finance

    Should You Close Your Credit Card?

    Find out the consequences before deciding to end your credit agreement.
  5. Personal Finance

    4 Reasons To Increase Your Credit Card Limit

    It seems contrary to smart financial planning, but increasing your credit limit can actually be a smart move.
  6. Personal Finance

    4 Common Credit Card Misconceptions

    Many Americans think these credit card "rules" are true. Read on to find out the facts.
  7. Personal Finance

    Should Your Credit Rating Scare You?

    Take the mystery out of credit scores by learning the most important ways it can impact your life.
  8. Personal Finance

    4 Habits That Damage Your Credit Score

    Many common money habits can affect your credit score negatively without you even knowing it.
  9. Retirement

    7 Ways to Use a Strong Credit Score During Retirement

    Find out why it is important to maintain a good credit in retirement. Learn seven reasons not to leave your credit score behind when you retire.
  10. Personal Finance

    How Many Credit Cards Should You Have?

    National stats indicate most consumers have three or more cards - are you one of them?
  1. What affects my credit score?

    Learn what affects your credit card and how your current balance and credit limit can affect your credit score? Read Answer >>
Trading Center