Credit Utilization in Canada: FAQs and Best Practices

Credit utilization is a key factor in your credit score. Here are FAQs and best practices for managing credit utilization in Canada:

1. What is credit utilization?

Credit utilization is the ratio of your current credit card balances to your credit limits. It measures how much of your available credit you are using.

2. Why is credit utilization important?

Credit utilization is a major factor in your credit score. High utilization can lower your score, while low utilization can improve it.

3. What is a good credit utilization ratio?

A good credit utilization ratio is below 30%. For example, if your credit limit is $1,000, try to keep your balance below $300.

4. How can I calculate my credit utilization ratio?

Divide your total credit card balances by your total credit limits and multiply by 100 to get a percentage. For example, $500 in balances on a $2,000 limit is 25%.

5. How can I lower my credit utilization?

Pay down your balances, request a credit limit increase, or spread your spending across multiple cards to lower your credit utilization.

6. Does paying off my credit card balance affect my credit utilization?

Yes, paying off your balance lowers your credit utilization, which can positively impact your credit score.

7. How often is my credit utilization reported?

Credit card issuers typically report your balances to credit bureaus monthly. Try to keep your balances low throughout the billing cycle.

8. Can closing a credit card affect my credit utilization?

Yes, closing a credit card reduces your available credit, which can increase your credit utilization and potentially lower your score.

9. Should I keep a balance on my credit card to improve my credit score?

No, carrying a balance does not improve your credit score. Paying off your balance in full each month is better for your score and saves you money on interest.

10. How does high credit utilization affect my credit score?

High credit utilization indicates higher risk to lenders and can lower your credit score. Keeping utilization low shows responsible credit management.