Credit Utilization

Credit utilization is open exposure divided by credit limit, expressed as a percentage. It is a simple ratio with two useful tails. High utilization, an account persistently at 90 to 100 percent of its limit, means the control is actually binding: either the customer has grown and deserves a re-underwritten higher limit, or it is leaning on you for financing and the limit is doing exactly its job. Chronic limit breaches cured by manual releases are the worst version, because the real limit has silently become whatever the release habit allows.

Low utilization is quieter but also informative. An account using 5 percent of a $500,000 limit represents $475,000 of approved, unmonitored capacity; if the customer's condition has deteriorated since the limit was set, nothing operational will surface it because no control ever binds. Right-sizing dormant headroom down to realistic trading levels is free risk reduction, and it also cleans up portfolio-level reporting of total approved exposure.

Utilization is best read as a trend joined with payment behavior. Rising utilization with stable on-time payment usually signals business growth and a legitimate limit-increase conversation. Rising utilization with slowing payment, balances climbing toward the ceiling while days beyond terms stretch, is the classic pre-default pattern: the customer is maximizing trade credit because cheaper sources have closed. That combination should trigger a review regardless of where the review calendar stands.