There are a lot of misconceptions about credit. Unfortunately, a lack of knowledge about how to use credit responsibly can result in unwitting damage to your finances. That’s why it’s so important to know all the facts before getting that shiny piece of plastic! Today, let’s talk about credit utilization. How much credit should you be using?
How Much Credit Should I Use?
When used strategically, credit is a great financial tool that displays your reliability to potential lenders. For many people, using credit feels like a double-edged sword or a difficult balancing act. How much credit should I use? How much is too much? At what point will my credit usage damage my score?
Fortunately, there are very specific credit scoring factors that tell consumers exactly how their credit score is compiled. Among those factors is credit utilization. Credit utilization ratio outlines how much credit a person uses versus how much is available to them. Consumers should aim not to exceed 30% of their available credit. Credit reporting bureaus look to see how consumers are managing their credit, and using too much is a sign that you’re too reliant on credit. So, to maintain a good score, it’s important not to over-extend.
Overuse of credit can be a sign that you are struggling financially. While using credit can feel like a band-aid, it’s important not to use credit to supplement other forms of income. This pattern can leave you in a mess of credit card debt.
How Much Credit Should I Use on Multiple Cards?
The same 30% credit utilization rule still applies across multiple cards. Each card in your name is considered on your score. To figure out how much credit you can use each month without over-saturating your credit utilization ratio, do the math. (Total monthly balances on all cards/Total credit limit on all cards) x 100.
If your current usage is 30% or above, start brainstorming ways you can cut back.
Credit and Paying Off Debt
Following the guidelines of the credit scoring factors is a recipe for success. But for those already struggling to make ends meet, using less credit can feel impossible. If you’re in that position, a reputable credit counseling agency like ACCC can help you assess your financial situation and find a solution to eliminate credit card debt.
If you found this blog helpful and want to explore other posts about credit, check them out here!