I know that your credit utilization affects your credit score, but I have a question about how exactly this is calculated. Suppose I have two credit cards:
- Card A has a credit limit of $1000 and I’ve put $30 on it.
- Card B has a credit limit of $500 and I’ve put $450 on it.
Credit utilization is the amount of credit you’ve used divided by the total amount of credit you have available. I see two obvious ways to calculate the overall credit utilization:
Take the total amount of credit used and divide it by the total amount of credit available.
In my example, this number would be (30+450)/(1000+500) = 32%.
Calculate the utilization for each card individually and average these numbers together.
In my example, this would be the average of 30/1000 and 450/500, which is 47%.
Which of these methods is used to determine the credit-utilization part of my credit score?
(I’m curious because one of my credit cards has a much higher credit limit than the others, but the lower-limit ones have better rewards. Assuming that my total spending remains fixed, I’m curious whether shifting this balance onto the lower-limit cards has any effect on my credit score.)