Credit utilization, or the amount of credit you use as compared to the amount of credit you have available, is a critical factor in determining your credit score. Understanding this vital metric and how it affects your credit score, as well as how to manage it, can be a vital component in maintaining a healthy credit score.
How Credit Utilization Affects Your Credit Score
Credit utilization accounts for a whopping 30% of your total FICO score, making it one of the most significant factors in determining your overall credit score. The higher your credit utilization, the more it can negatively affect your score, as it is seen as a sign of high credit risk.
Lenders and creditors alike prefer borrowers with low credit utilization rates, as it this suggests that they are more responsible with their credit and therefore less likely to default on their loans.
How to Manage Your Credit Utilization
Here are some tips to help you manage your credit utilization and maintain or build a healthy credit score:
Credit utilization accounts for a significant portion of your credit score, so learning how to manage this factor is vital to your financial well being. From getting approved for new credit or loans, to increasing your credit limit, having a responsible and foundational grasp of your credit utilization is key to building a healthy financial profile. By keeping your credit utilization rate low, paying your balances in full, and spreading out your spending, you can manage your credit utilization and maintain a healthy credit score.
Sign up to receive news & updates!