{1/8} There are two different types of credit that we should all be familiar with:

- Installment
- Revolving

Let’s dig into revolving credit and some details around your Credit Utilization Ratio.

#FinanciallyFluentThread #CreditCards

{2/8} I’m not the biggest proponent of using credit cards but this is an important concept to understand.

Revolving credit doesn’t have a pre-set end date like installment.

It carries over to the next month - hence why it’s called revolving.

{3/8} Your credit utilization ratio is a measure of how much you owe on all of your revolving accounts: credit cards and lines of credit.

The ratio is expressed as a percentage.

How much you currently oweyour credit limit.

It’s very simple. Let’s look at an example:

{4/8} Say you have $20,000 in available credit on two credit cards and you have a balance of $7,000 spread between the two

$7,000$20,000 = 35%.

You’re using 35% of the total credit you have available.

You can either calculate this per card or as an overall rate.

{5/8} If you’re using less of your available credit, they usually interpret this as you doing a good job of managing your credit.

This ratio can impact up to 30% of a credit score, so just make sure you pay your card off in full each month and don't overspend.

{6/8} The “experts” say to keep your credit utilization rate below 30%.

A rate higher than this could be a red flag to lenders or creditors that you have issues paying your debt off and managing your finances.

{7/8} A few ways that can help manage your credit utilization rate:

Paying off your balance in full every month
Keeping accounts open with zero balances
Request a credit limit increase

The best thing you can do is paying off your balance in full each month.

{8/8} Some might think that adding a new CC will help lower your ratio. It can, but:

It can impact your credit score in the short term - too many inquiries. Having that available credit to potentially spend might not be the best for careless spenders.

#FinanciallyFluent #Credit