How Much Credit Card Utilization is Good
Credit card utilization refers to the percentage of used balance in your credit limit. To calculate the credit utilization rate, you must divide the total card balance by the total card limit and then multiply by one hundred percent. You can also calculate it by using the online credit utilization calculator. To the creditor, the credit utilization represents the level of the borrower’s risk to them. If they see someone who constantly charges the card to a high balance, they will perceive that the person have the problem in repaying the monthly amount.
On the other hand, having a lower credit card utilization rate suggests that you can manage your finance without your credit card. The best credit card utilization percentage is 30% or lower. If you always maintain a low credit card utilization, you will find your credit score slowly increase to a decent level on the credit report.
Credit utilization is one factor that affect the credit score. There are other factors like number of open accounts and credit history that affect the credit score. Nevertheless, people who maintain a low credit utilization almost always have good credit scores. People who frequently max out their cards will have lower credit scores even if they settle their balance in full every month. If you don’t want your credit score to be affected, you should control your spending habits.
High utilization on the card can have a negative impact on your credit score, especially if you don’t have an established credit history. Spreading your expenditures over multiple cards can prevent you from focusing the credit utilization on a single card. You should also try to make repayment more than one time every month. Every time you make a payment, the balance will be reduced and there will be more rooms to make new purchases. Doing so ensures that the balance is always low.
Another way you can reduce credit utilization is to ask the credit card company to increase the credit limit of your card. This is a reasonable request if you recently have a raise in your income. However, you must keep in mind that asking your credit card company to raise your credit limit can result on a hard inquiry. A hard inquiry will cause your credit score to lose a few points.
It is important to always make payment before the reporting date. The reporting date is the date when the credit card company report your payment to the credit bureaus. It may be earlier than your due date so make sure you check with them. You can check the reporting date by calling the customer service line. Every time your payment is reported, your credit score will be updated.