Why is it important to track your credit utilization?

Tracking your credit utilization is crucial because it is a significant factor in determining your credit score. Credit utilization refers to the ratio of your current credit card balances to your credit limits. Lenders use this metric to assess the risk involved in lending to you. A high credit utilization ratio—typically above 30%—suggests that you may be relying heavily on credit and could be overextending your finances. This can be perceived as a higher risk, leading to lower credit scores. Maintaining a lower credit utilization ratio is generally advisable as it reflects responsible credit management and can enhance your creditworthiness in the eyes of potential lenders.

The other options do not accurately reflect the importance of tracking credit utilization. For example, tracking credit utilization does not directly relate to calculating taxes owed or affect cash flow. Additionally, it does have a significant impact on financial health, contrary to the statement suggesting it has no impact. Understanding and managing credit utilization is vital to maintaining a good credit score and, consequently, better financial opportunities.