✅Credit Health Video #3: Learn about why knowing your credit utilization ratio is important and how to calculate it.
Knowing the factors that make up your credit score are important so you can live the life you want. And one of the biggest? “Credit card utilization.”
In other words, how much of your credit card’s limits are you using at any given time? In general, the magic number you want is below 30%, or in other words, a 30% balance-to-credit limit ratio.
Let’s break it down. One of your cards has a balance of $6,000 with a limit of $10,000, and a second card has a $1,000 balance and $7,000 limit. That’s an overall balance of $7,000 against combined limits of $17,000, and that’s a 41% credit utilization ratio. So to get to 30%, you’d need to pay your balance down to $5,100 to continue building a good credit score.
Now here are some other tips to help you achieve a 30% ratio: Consider refinancing your credit cards to get lower rates. That saves you extra money you can use towards paying your debts down. You can also request a credit limit increase. And, it also helps to leave zero balance accounts open because that maintains your credit limit while keeping your balances low.
It’s good to show you have good credit utilization, as that shows lenders you handle credit responsibly. But however you do it, keep that target below 30%!
Get the credit score you want, so you can do all the things you want!
To get more credit tips, visit Upgrade’s Credit Health Insights: https://www.upgrade.com/credit-health/insights/
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