“Why Credit Untilization Matters!” By Bishop Martin Wilson


Credit utilization is one of the most significant factors that affect your credit score. It refers to the percentage of your available credit that you’re currently using. Maintaining a low credit utilization rate is crucial for keeping your credit score in good shape. In this article, we’ll explain what credit utilization is, why it’s important, and how you can manage it effectively.

What is Credit Utilization?

Credit utilization is the ratio of your credit card balance to your credit limit, expressed as a percentage. It is a key component of the “amounts owed” factor, which makes up 30% of your credit score. A lower utilization rate suggests to creditors that you’re managing your credit responsibly and are not overly reliant on credit.

Formula to Calculate Credit Utilization:

For example, if you have a credit card with a $1,000 limit and your current balance is $300, your credit utilization is 30%.



Why Does Credit Utilization Matter?

Credit utilization gives lenders a snapshot of how much of your available credit you’re using. The higher the utilization, the more risk it signals to lenders, which can lower your credit score. Keeping your utilization below 30% is recommended, but the lower it is, the better, especially if you’re aiming for excellent credit.

A credit utilization rate of:

  1. 0-9% is ideal for maintaining a high credit score.
  2. 10-29% is considered good and should not negatively impact your score.
  3. 30-49% may start to slightly impact your score.
  4. 50% or higher can significantly lower your credit score.

Managing Your Credit Utilization

To keep your credit utilization in check:

  1. Pay your balance in full each month: This ensures that your utilization remains low.
  2. Make multiple payments within a billing cycle: This reduces the balance reported to credit bureaus at any given time.
  3. Request a credit limit increase: A higher limit with the same balance reduces your utilization.
  4. Open a new credit account: This adds to your total available credit, but proceed cautiously to avoid too many credit inquiries.

Examples of Credit Utilization

  1. If you have a credit card with a $300 limit and a $90 balance, your credit utilization would be 30%, which is considered the maximum safe threshold.
  2. If your credit card has a $500 limit and you carry a $50 balance, your utilization is 10%, which is excellent and helps improve your credit score.
  3. If you have a credit card with an $800 limit and a $400 balance, your utilization is 50%, which can significantly hurt your credit score and should be reduced.

Final Thoughts

Managing your credit utilization is an easy but essential step toward maintaining or improving your credit score. By keeping your usage below 30% of your available credit and making regular payments, you can ensure that your credit profile remains attractive to lenders. Be strategic with your credit card use, and keep an eye on your balances throughout the month to maintain a strong credit score.

Remember, even small changes in how much credit you use can make a big difference in your credit health!

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