Good Credit Score: Why ignoring credit utilization ratio is a mistake you can’t afford
Many people know that having a good credit score is important for getting loans or credit cards. However, not many know about something called the “credit utilization ratio.” Your credit score depends on various things, like how you’ve repaid credit in the past, how long you’ve had credit, and the types of credit you have.
Today, let’s talk about the credit utilization ratio.
So, what is it? Simply put, it shows how much of your allowed credit you’re currently using.
Technically, it’s the ratio of how much money you owe on all your loans and credit cards compared to the total credit you’re allowed. The more you spend using credit, the higher your credit utilization ratio. This ratio is not only important for calculating your credit score but also gives lenders an idea of how you handle credit.
A lower credit utilization ratio is good and shows responsible credit behavior, which helps your credit score. On the other hand, a consistently high ratio might means you rely too much on credit and could be facing financial stress.
What’s a good credit utilization ratio? Different credit bureaus have different standards, but it’s generally suggested to keep your total ratio below 30 percent. It’s okay to go above this occasionally for emergencies, but it’s best to stay between 25-30 percent most of the time. And remember, only borrow when absolutely necessary.
How do you keep your credit utilization ratio in check?
Firstly, spend wisely within your limits. Don’t use your credit card for more than you can pay back in full before the due date. Never just pay the minimum amount due on your cards.
Having a high credit limit doesn’t mean you should max it out regularly. You can also ask your card issuer to increase your credit limit, which automatically lowers your utilization ratio if you don’t increase spending.
If you have multiple credit cards, don’t use up all the credit on one card. Spread your expenses to keep low ratios on all cards. It’s okay to use one card moderately and leave others unused for a few months.
Remember, it’s important to check your credit score at least once a year if you use credit regularly. Managing your credit utilization ratio well is crucial for a healthy credit score, so aim to keep it below 30 percent most of the time.
Today, let’s talk about the credit utilization ratio.
So, what is it? Simply put, it shows how much of your allowed credit you’re currently using.
Technically, it’s the ratio of how much money you owe on all your loans and credit cards compared to the total credit you’re allowed. The more you spend using credit, the higher your credit utilization ratio. This ratio is not only important for calculating your credit score but also gives lenders an idea of how you handle credit.
A lower credit utilization ratio is good and shows responsible credit behavior, which helps your credit score. On the other hand, a consistently high ratio might means you rely too much on credit and could be facing financial stress.
What’s a good credit utilization ratio? Different credit bureaus have different standards, but it’s generally suggested to keep your total ratio below 30 percent. It’s okay to go above this occasionally for emergencies, but it’s best to stay between 25-30 percent most of the time. And remember, only borrow when absolutely necessary.
How do you keep your credit utilization ratio in check?
Firstly, spend wisely within your limits. Don’t use your credit card for more than you can pay back in full before the due date. Never just pay the minimum amount due on your cards.
Having a high credit limit doesn’t mean you should max it out regularly. You can also ask your card issuer to increase your credit limit, which automatically lowers your utilization ratio if you don’t increase spending.
If you have multiple credit cards, don’t use up all the credit on one card. Spread your expenses to keep low ratios on all cards. It’s okay to use one card moderately and leave others unused for a few months.
Remember, it’s important to check your credit score at least once a year if you use credit regularly. Managing your credit utilization ratio well is crucial for a healthy credit score, so aim to keep it below 30 percent most of the time.
