What does a high credit utilization ratio typically indicate?

A high credit utilization ratio typically indicates potential financial distress and risk. This ratio measures the amount of credit you are using relative to your total available credit. When the utilization ratio is high, it suggests that an individual is heavily reliant on their available credit, which can signal financial strain and increase the likelihood of missed payments or default.

Lenders view high credit utilization negatively because it implies that a borrower may be overextended and struggling to manage their debt levels effectively. In general, a lower utilization ratio is preferred, as it reflects prudent financial habits and a responsible approach to credit management. This is why a high credit utilization ratio is associated with potential risks in terms of creditworthiness and financial stability.