APR 02, 2015
Have you ever heard the phrase, too much of a good thing , when something went wrong? Well, this adage definitely applies to your use of credit cards. Specifically, spending too much on your credit cards can be too much of a good thing when it comes to your credit score. Whether you have one credit card or five, whether your credit limit is $500 or $5,000; lenders expect you to spend responsibly. Part of that means not using too much of your available credit.
In fact, this notion of limited spending is one of the primary factors contributing to your credit score. Commonly referred to as a credit utilization ratio , its the amount of outstanding debt you carry on your credit cards, when compared to your overall credit limit. A utilization rate of more than 30 percent may you to lose several points. On the other hand, using less than 30 percent will earn you points.
Calculating Your Credit Utilization Ratio
Its a good idea for you to calculate your rate, so you know where you stand and can make any needed adjustments. To do so, divide the total amount of your credit card balances by your total credit limits.
How High Should My Credit Utilization Be?
A credit utilization rate less than 30 percent is most beneficial to your credit score. If thats easy for you, try to get it less than 20 percent! For those who are already using more than whats recommended, it wont necessarily be easy, but focus on paying down your debt. While its challenging to pay off debt, it will definitely be worth it! A low utilization rate is so significant to your score, you will be glad you got rid of some of that debt.
Manage your credit utilization rate by following a few suggestions below:
For as significant a factor to your credit score as this is, it is a fairly easy one to control. Check your limits and then be sure to keep your spending in check. If youve got any balances, work to reduce them to a recommended level.