What Is A Credit Utilization Rate?

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What will you learn

Understanding credit utilization.

The implications of having high credit utilization.

How to decrease your credit utilization Rate.

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Credit Utilization Shows What You Have Access To

Your credit utilization rate is the amount of credit currently in use as a percentage of how much credit you have total. For example, you have two credit cards, each with a $1000 limit. Currently you owe $100 on one card and $300 on the other. Divide the $400 in use by the total $2000 limit, and your Credit utilization Ratio would be 20%.

An important note here is that credit utilization only applies to revolving (aka credit card) accounts. The percentage is looked at as how much credit you have access to and is a substantial factor in your credit score. Having high balances on multiple accounts may indicate that you have more debts than you can afford to pay.

A Lower Credit Utilization Ratio Shows Responsible Credit Use

Though it varies based on your credit score goal and other financial goals, a general rule of thumb is to keep your credit utilization under 30%. Lenders consider maintaining a low ratio and low balances on your accounts a sign of responsible credit use – this also factors into a higher score overall!

It is suggested for those who are aiming for very high credit scores, keeping your credit utilization under 10% is a must.

By Contrast, A Higher Credit Utilization Ratio Can Be Worrisome

While it does not tell the whole story, a high credit utilization rate can indicate poor credit management Especially if you have any negative marks in your payment history, have had multiple inquiries or new accounts in a short time, it may be a sign that you are in over your head.

Steps to Decreasing My Credit Utilization Rate

The only way to decrease your credit utilization is to stop spending credit and start paying back your lenders. Paying down your balances frees up available credit and swings your ratio back down. However, if you do not stop spending, your balance will not have the chance to lower.

If it All Seems Like Too Much to Navigate, There Is Help!

Credit Helpers are here to assist you in navigating the process to achieve your credit goals. Whether you are looking to decrease your credit utilization or need someone to help talk you through your specific situation, we are here to help!

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