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Utilization Ratio: What It Is And Why It Matters

Utilization Ratio

You have no doubt heard the term 'maxed out' when people talk about credit cards. This refers to the borrower having used, or utilized, all the available credit on their card. The credit card company gave them a limit of $1,000 — and they have used all $1000. The borrower won't be able to put any more charges on the card until the balance is paid down or off.

Let's say the borrower on that $1000 card pays off $500. Now there is a balance of $500, and $500 available to utilize. That means that 50% of credit card's available credit has been used — and that means that account has a 50% utilization ratio. If the same borrower owed $200, the utilization ratio would be 20%. If they owed $800, it would be 80%. In this article we are going to help our neighbors in the Miami Lakes, FL learn a little more about utilization ratios and how they impact your credit score.

Why Do The Credit Bureaus Care About Utilization Ratios?

Imagine that you told a friend that they could borrow $500 a month from you if they needed it. "I can't loan you any more than $500 at a time," you say, "but if you pay what you have borrowed back, I will always loan you up to $500." If every month your friend needs to borrow that $500, what would you think about your friend's financial situation? You know that if they constantly need to borrow money, and can't even pay off the $500, they are probably not very responsible with their finances. You would not be likely to loan them any more money, would you? Well, that is exactly how lenders and credit bureaus look at it too.

How Much Will My Utilization Ratio Impact My Credit Score?

Your credit utilization ratio can affect up to 30% of your credit score. Your credit score will take into account the utilization ratio of all your revolving accounts. As a general rule, anything over 50% is negatively impacting your score, while anything under 30% is positively impacting it. The closer you get to 0% on one hand, or 100% on the other, the greater the impact will be. We want our friends in Miami Lakes FL, to know that one of the easiest ways to improve your credit score is to pay down the balances on your credit cards, starting with the lowest limit cards first.

Let Build Worth Strategies Work For You

At Build Worth Strategies we proudly serve the Miami Lakes, FL area and will work with you personally to help you improve your credit, step by step, the right way. If you have any questions about credit repair, or if you would like to know how Build Worth Strategies can help you earn a score that saves you money on interest fees and helps you get approved for the things you need, please do not hesitate to call our office at 855-532-8453, or contact us, for a free consultation

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