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Credit Card Utilization
How to calculate your credit card utilization.
Balance Owed ÷ Credit Limit × 100 = %
2 IMPORTANT DATES (Due Date & Statement Date)
Due Date-The date it MUST be paid to avoid any late fees.
Statement Date-This is the date they will REPORT to the credit bureaus. Why is this date so important?! Whatever balance is reported on this date is what they will report to the credit bureaus. Make sure your balances are LOW (3%-8%) about three days before the statement date. Remember, statements dates can change because they are on a cycle (29 day, 30 day etc. ). Be sure to check your statement for your current statement date
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2 Replies
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When is the best time to pay credit card debt so it reports and not get hit with high credit utilization ratio.
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Credit utilization is one of the components that can be detrimental to your overall credit score if you know how to balance your credit.
How To Manage Credit Utilization To Increase Your Credit Score
Definition: Credit utilization rate is the percentage of your total credit limits currently being used. This shows the usage of available credit resources.
Impact on Credit Score
High Utilization:
- A high credit utilization ratio of over 40% can permanently damage your credit score.
- Lenders will perceive you as someone who depends on borrowed funds, which indicates that you have borrowing issues.
Low Utilization:
- Maintaining a low utilization ratio of below 32% and beyond is required to show lenders you are responsible when using credit since you do not reach the limit of your credit cards.
Credit Scoring Models
All credit referencing models, such as VantageScore and FICO, regard the usage level as a key metric; roughly 30% of your overall score is based on such factors.
Step-by-Step Guide on Calculating Your Optimal Credit Card Utilization
Add the total limits across all cards you own to acquire the total counting.
Consider the following:
- If you own three credit cards with limits of $5,000, $3,000, and $2,000, then your total credit limit on all cards would be
$5,000 + $3,000 + $2,000 = $10,000
Calculate Your Current Balances
Take the total current balances on the cards.
- Example: Your current balances are $1,000, $500, and $200, then the total balance becomes:
- $1,000 + $500 + $200 = $1,700
Credit leased Calculated That:
The total balance is owned by dividing the credit limit by the total balance and multiplying it by 100 percent.
Formula:
- Credit Utilization=(Total Balance divided by the Total Credit Limit)×100
- Credit Utilization=( Total Credit Limit divided by Total divided by Total Credit Limit)×100
Consider the example:
- Credit Utilization=(1,700 divided by 10,000)×100=17%
A credit utilization ratio of up to 30 % is the maximum allowable ratio—a gentle reminder: For most people, maintaining a credit limit of 60 percent will be sufficient. Watching your balances and limits regularly, Corrective measures can be taken to set a range, usually under 30%.