Read on Twitter
{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
- 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.
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 owe
your credit limit.
It’s very simple. Let’s look at an example:
The ratio is expressed as a percentage.
How much you currently owe
your 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.
$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.
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.
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.
Paying off your balance in full every month Keeping accounts open with zero balances Request a credit limit increaseThe 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
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
