The Truth About Credit Utilization and How It Impacts Your Score

The Truth About Credit Utilization and How It Impacts Your Score

Credit utilization accounts for 30% of your credit score, making it one of the most influential factors. Here’s everything you need to know about it.

What is Credit Utilization?

Credit utilization is the percentage of your available credit that you’re using. For example:

• If your credit limit is $10,000 and you owe $3,000, your utilization rate is 30%.

Why Credit Utilization Matters

High credit utilization signals risk to lenders, even if you pay on time. Keeping it low demonstrates responsible credit management.

How to Improve Credit Utilization

1. Pay Down Balances: Focus on reducing credit card debt.
2. Request a Credit Limit Increase: A higher limit lowers your utilization rate without reducing spending.
3. Avoid Adding New Debt: Refrain from using cards for large purchases.

FAQs About Credit Utilization

Q1: What’s the ideal credit utilization rate?
Experts recommend keeping it below 30%, but under 10% is even better.

Q2: Does paying off a card completely hurt my score?
No, but it’s wise to keep accounts open to maintain credit history length.

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