“I truly believe that the reason people don’t live out their ideal life...is because they don’t know where to learn.”
— Stephen Alred Jr.

Term of the week: Credit Utilization

Credit card utilization is a ratio that credit scoring agencies turn to when determining your lending risk. It is found by taking your all of your credit card balances and dividing them by an aggregate total of your credit card limits. Most experts say that you want to keep your utilization ratio below 30% in order to avoid being penalized by the rating agencies.

The utilization ratio and your credit score are inversely related. In other words, the higher your credit utilization, the lower your credit score.

For example: Jim has three credit cards and a total of $8,000 in credit card debt. On card #1 and card #2, he has a credit limit of $5,000. On card three he has a limit of $3,000. His credit utilization ratio would be 61%. Jim's credit score is negatively impacted by his utilization ratio, and will continue to be impacted until his debt drops below $3,900.

What are you thoughts? Have you cancelled any credit cards in the last few months? Feel free to send us a message via our contact page or visit our parent company for more personalized advice.

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