When you think of your credit score, you may not consider how this number is calculated or how your actions play a role. Simply put, every credit score is made up of certain criteria, and each criterion can cause an increase or decrease in credit score. With credit utilization being one of the things that can impact your score, it may be time to learn how to manage your credit utilization.

In order to successfully manage your credit utilization rate, you’ll need to understand what it is and how it can negatively or positively impact your life. 

What is credit utilization and how is it calculated?

Credit utilization is a number used to compare the amount of debt you owe to the amount of revolving credit you have available. By dividing the amount of credit that you use by the amount of credit available, you can determine your credit utilization rate. The more of your available credit you use the higher your credit utilization rate.

For example, if you have several credit cards, one with a credit limit of $500, one with a credit limit of $200, and another with a credit limit of $300, your total available revolving credit amount is $1,000. If you use $400 of the $1,000 of available credit, your credit utilization rate will be 40%. Whereas if you were to use $100 of your available credit, your credit utilization rate would be 10%.

Keep in mind, that while your credit utilization rate is based on your total revolving credit (credit cards, lines of credit) limit, individual utilization rates will also be taken into account. For instance, if you max out a single credit card, that account will have a utilization rate of 100%. This also negatively affects your credit score even if your total utilization rate is much lower.

Why does your credit utilization rate matter?

Credit utilization is one of the many factors that can affect your credit score. It actually makes up 30% of your FICO credit score, which means it is one of the most important factors that influence your credit score. Depending on the number, creditors and lenders may or may not approve your application. This is because your credit utilization rate is another way for creditors and lenders to measure your ability to manage your finances.

If you have $2,000 of revolving credit available to you between one or multiple credit cards, in order to keep your credit utilization at or below 30%, you’ll want to use no more than $600 if you don’t want to see your credit score drop significantly – an ideal utilization rate to increase your credit score is keeping it below 10%.

Managing your credit utilization

Since your credit utilization rate accounts for 30% of your credit score, you want to pay close attention to this number to ensure it doesn’t start to negatively impact your score. This is especially true when you want to improve your score to increase your chances of being approved for things that require good credit such as applying for a home loan or apartment.

You can successfully manage your credit utilization rate by:

• Increasing your credit card limit
• Paying your credit balance in full instead of just the minimum balance
• Keeping credit accounts open even when there is little to no use
• Pay down debts
• Actively monitor your credit usage

Keep in mind that the goal of managing your credit utilization rate is to keep it at 30% or less. This doesn’t mean that you have to completely stop accessing your revolving credit, but you want to do so responsibly if you don’t want to see your credit score suffer.

For credit repair assistance and financial advice, contact Credit Absolute today for a free consultation!

 

 

College life brings a host of new and exciting experiences in the various aspects of your life. Financial independence and responsibility also come into play. While your achievements are important in putting you on your right career path, a good credit score is paramount in bettering the deals you will get when renting or buying a home, purchasing a car, getting a cellphone plan, applying for a student loan, or in some instances, getting employment.

This calls on your effort to not only build but also maintain good credit. It may sound complicated and intimidating especially when you don’t know how to go about it. Below, is all you need to know on how to maintain a good credit score in college.

Taking Advantage of your Parent’s Good Credit

This is commonly referred to as ‘piggybacking’. It allows people with bad or no credit to enjoy a spillover of other people’s good credit. It is a great way of establishing and maintaining your credit especially if you need a little help in managing your budget. For you to qualify for this, you have to become an authorized user of your parents’ accounts.

This comes in handy especially if you can’t get your own credit card; according to the Oct 1^st, 2013 Credit Act report, students and other persons below 21 years of age cannot get their own credit cards without proof of income or at least a co-signer. Apart from the credit boost you get from your parent’s account, your credit card use is forwarded to credit bureaus in your name.

Get the Most Suitable Credit Card

Your ability to qualify for a credit card opens you to the opportunity to choose from a variety of cards. You should research and shop around to find out what these cards have to offer before making your choice. Some of the benefits to look out for include low-interest rates, no annual fees, convenient credit limits, and other competitive incentives.

If you have “no credit” consider applying for a secured credit card to start building a fresh record.

Better still, you can opt for student credit cards. These come with incentives such as cashback rewards, limited credit history requirement, no annual fees, and 0% introductory APR among other benefits. Your own credit card comes with sole responsibility. This means that it’s up to you to stay on top of your billing statements so as to improve and maintain a good credit score.

Always Pay your Credit Balance

Your payment history accounts for 35% of your credit. Good credit of course depends on the timely and full payment of your balance. Inability to pay or late payment may attract additional interest, accrue more debt and negatively affect your credit.

This can take a long time to repair. Besides this, it is also a sign that you are living beyond your means. Ideally, your credit balance should be about 30% of your credit limit or below.

Tip: The higher your credit balance in relation to your limit is, the worse your credit becomes.

Pay your Bills on Time

Late or failed payment of rent, utility bills, parking tickets, library or school fees, and other payments can harm your credit; especially is if they are sent to collection agencies and reported to credit bureaus. Ways of beating this include setting up payment reminders and electronic billing. You can also organize auto payments with your bank to ensure that timely payments are done.

If you live in an apartment, you might get credit for full and timely payments. You can take advantage of a rent reporting program that transfers your payment reports to the three major credit bureaus; Experian, Equifax, and TransUnion. This consequently improves your credit. However, your landlord needs to be registered and the lease needs to be in your name.

Limit Applications and Inquiries for New accounts

Numerous credit inquiries negatively impact your credit score. In the event that you need to make new credit applications that warrant hard inquiries, concentrate them into a period of 14 days in which they will factor as one inquiry.

Once you decide to get a credit account, get all the facts right to avoid the urge to close and open others every now and then. Short credit histories with several new accounts are seen as riskier compared to a few accounts with long credit histories. When you close a credit card, you not only lower your available credit but also shorten your credit history both of which can reduce your score.

In a Nut Shell

Maintaining a good credit score in college is important if you are going to get any good deals on personal credit in the future. This requires vigilance on your part to ensure that you do not do anything that can have a negative impact on it. When all is said and done, it all comes down to personal financial responsibility.