Financial Counseling Certification Program (FiCEP) Practice Exam

What does a low percentage of available revolving credit in a credit profile indicate?

1. Higher risk of default

2. Better financial management

3. Increased likelihood of credit decline

4. No active credit usage

The correct answer is: Better financial management

A low percentage of available revolving credit in a credit profile is indicative of better financial management. This situation suggests that the individual uses a smaller proportion of their available credit, which can reflect responsible credit usage. It shows that the person is not overly reliant on credit and maintains a good balance between their income and expenses. Such behavior is often viewed favorably by lenders, as it demonstrates the ability to manage credit prudently, leading to a potentially better credit score. This positive indicator of financial health generally aligns with best practices in credit management, where individuals are encouraged to keep their credit utilization ratio below 30%. Consequently, a low percentage of available credit used implies that the individual likely pays their bills on time, does not overextend themselves financially, and can manage debt effectively. These qualities are essential when evaluating creditworthiness and financial stability.