Credit utilization refers to the ratio of your credit card balances to your credit limits. It is a key factor in determining your credit score. High credit utilization can negatively impact your credit score, while low credit utilization can have a positive effect.

For example, if you have a credit card with a $5,000 limit and a $4,000 balance, your credit utilization ratio is 80%. This high ratio can signal to lenders that you may be overextended and could be a higher credit risk. On the other hand, if you have the same $5,000 limit but only a $500 balance, your credit utilization ratio is 10%, which is seen as favorable by lenders.

It's generally recommended to keep your credit utilization below 30% to maintain a good credit score. Keeping your credit utilization low shows that you are responsible with your credit and can help improve your creditworthiness.

References:

• Experian - Understanding Credit Utilization and How It Impacts Your Credit Score
• Equifax - Credit Utilization: What It Is and How It Affects Your Credit Score