Have you been paying attention to how much you utilize your credit?
You might be thinking to yourself, who cares – it’s mine to use, right!
Well, for starters, Equifax, Experian, and TransUnion – the three major credit bureaus in the US – they care quite a bit.
They actually have a fancy term for how much you use your credit:
The credit utilization ratio.
This number, in fact, is one of the components used when determining your credit score.
So let’s lift the veil on your credit utilization ratio, and find out what it means for you.
Your credit utilization ratio is the percentage of your total available credit currently in active use.
One of the simplest ways to improve your credit score is to lower your utilization ratio – by raising your available credit, and using less of it.
To calculate your ratio, pull together the info from all of your credit cards.
Add up the outstanding balances and add up all the credit limits.
Then, take the balance total and divide it by the limit total.
Multiply the answer by 100 and – BOOM! – you’ve got your credit utilization ratio, in the form of a percentage.
Your ratio will always be going up and down as you spend and, ultimately, pay off your credit card debts.
You’ll want to keep your ratio below 30% to maintain a strong reputation in the eyes of the credit bureaus.
So, in sum, keep your cards open but pay off those debts!
If you need any help with that last part, feel free to drop by our office or reply directly to this email to get in touch with us :)
