Making the Most of Your Credit Utilization Ratio
We all know that having a good credit score is important. It is more than just a number ‐ it reflects how well you manage your finances and debt and can spark judgement. Most of us realize that having a good or excellent credit score is an important aspect of financial health but what about your credit utilization ratio?
- What is the Credit Utilization Ratio?
Your credit utilization ratio is the amount of credit you currently use divided by the amount of credit you have available. This is the relationship between your credit balances and credit limits on your open card accounts.
According to FICO, consumers with the highest credit scores in the nation (over 760) have an aggregate credit utilization of 7 percent. The lower the ratio, the more points you will earn on your score, generally speaking.
- Managing Your Credit Utilization Rate
You can increase your credit limits to keep your credit utilization rate low. If your spending remains the same but your limit increases, your spending will be a lower percentage of your limit, which will help your ratio to climb. If you have a hard time with spending, you may want to be careful about taking this step. Some are tempted by higher credit limits and may feel a strong urge to spend more than usual.
If you do choose to request a higher limit on a card, keep in mind that it may involve a hard inquiry which could have a negative effect on your credit health.
Stay organized and up to date on how you are doing financially. Plan monthly check‐ins to ensure your ratio is good and to stay on top of how much money you are charging to each card. For further help in reaching optimal financial health, reach out to us!