Credit utilization is a key metric for
lenders to assess the risk of lending money. Lenders will look at your credit
card balance and compare it against what you can afford to spend on that same
credit card. This measure, called the "credit
utilization ratio," tells them how much of their
available credit you're using. The lower this percentage, the better off you
are in terms of managing debt levels. In order to succeed with managing your
credit utilization rate, try implementing these tips into your daily routine:
1) Always pay off balances monthly: If you have a
credit card and are carrying balances, then it's time to take action. Credit
utilization is the percentage of your total available credit that you're using
at any given time. The lower your number, the better off you will be in the
long run because it means you're not maxing out your cards and incurring higher
interest rates. You can easily keep this
low by paying off all balances monthly so that they never get too high!
2) Avoid making new purchases: Credit
utilization is a big factor in your credit score. The higher your
debt-to-credit ratio, the less attractive you are to lenders. Charge up your
existing cards and avoid making new purchases instead!
Start with this: "Lenders use credit score
as a measure of how risky it would be for them to lend money."
3) Make payments early in order to take
advantage of low interest rates: Interest rates are at historic lows. If
you have credit card debt, make payments early to take full advantage of these
low rates. Credit utilization is one factor that will affect your credit score
and can cause a drop in your score if it becomes too high. Make sure to pay off
any balances so you can avoid paying higher interest rates later on when the
new year starts!
4) Pay attention while shopping online: You're not alone
if you've found yourself in the middle of an online shopping spree and realized
that your credit card is maxed out. You might have been juggling payments for a
while now, or maybe this was just one too many impulse buys. Either way, you
need to stop spending money until your credit utilization ratio goes down.
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