Q: I am trying to improve my credit score and what heard the term and -this is how the "credit utilization." work
? A: Although there are many factors that go into your credit score, according to FICO, your credit utilization rate is a factor that aid represents 30% of your credit score, which means your total debt held . Strengthen your credit utilization rate can help improve your credit score, which could save you money on interest and improve your eligibility for the best credit offers. Here's how your credit utilization ratio is calculated:
How does the credit utilization rate
The higher your credit utilization is better?. Your "credit balance" is composed of the total amount of debt you owe and your "available credit" is made of how much credit you still have available. A higher ratio of the use of credit reflects negatively on your credit score because it shows that you are using a lot of the credit you have available to you - in other words, you have more debt relative amount of credit you have available [
what is a "good" credit utilization?
As mentioned above, the lower your credit utilization, over a positive effect it has on your credit score. An ideal ratio of credit use would fall between 1% and 10%, but anything below 30% is still good.
How to use your credit report
There are two ways to reduce your credit utilization. First, try not to use your loans and / or credit cards to the limit. Another good tip is to avoid closing old credit cards, , even if you do use. unused credit cards go to the "available credit" part of the equation, helping to maintain low credit utilization.
If you do not have enough available credit to lower your credit utilization rate, it may be a good idea to open a new card. For example, if your balance is $ 3,000 and your credit limit is $ 7,000 on the card of a credit you have, you will have a utilization rate of 43%, even if you pay your balance in full. If you add another credit card under your name with a limit of $ 10,000 and still spend $ 3,000 a month between the two cards, your ratio will drop to 30%, giving a boost to your credit score.
One caveat to this is that if you want to sign up for a new credit card, make sure you ask for a credit card you will be approved for. Credit inquiries resulting from the application for a credit card may slightly lower your short-term credit score; However, if you are approved, improving your credit utilization rate will more than offset the initial effect of the credit. If you want to know more about the best card for your situation, here are the best credit cards for your credit score.