credit use tips

How much of credit to use?

 

Article Written by  : MLAVA Financial News

When lenders look at your credit, they consider credit utilization rate provided by one of three credit bureaus, namely Experian, Equifax and TransUnion. Credit utilization rate is also contributes to form your credit score. Credit utilization is the amount of credit you used out of what is allowed by the credit line to you. Generally lower utilization rates helps to get a higher FICO score.

How to get a lower utilization rate? When creditors increase your credit limit, your utilization rate could go lower. Similarly, if a lender lowers your credit limit your utilization rate go higher giving you a higher utilization rate. Paying down more than the minimum required could help you to lower the balance and lower the utilization rate.

Higher utilization rate may indicate that you are overextending your credit facility. This may result in some of the creditors lowering the limit of available credit such as credit card limit. This could result in lower FICO score and you may won’t to avoid this situation by not overextending the credit limit. Higher balances are considered higher risk for many lenders. There is no magic formula to tell how much utilization is good. But many believe keeping the utilization around 50 percent of the limit helps to get a higher FICO score.

credit use tips

Utilization of credit and its impact on FICO score

Article Written by : Financial Haze

The infamous FICO (Fair Isaac Corporation) score take into consideration several factors including your utilization of credit. It accounts for 30 percent of your FICO score. Debt to limit ratio is key component but not the only aspect they consider. According to three main credit bureaus, Equifax, Experian and TransUnion, who keep track of your credit and generate a FICO score, they look at six different metrics including debt to limit ratio, number of accounts with balances, amount owed on all lines of credit, and the amount of the installment you pay each month.

Having a higher credit limit can help your credit score. If you have one card with a limit of $1,000 and $500 balance you owe and another card with a limit of $2,000 and $1,000 balance, your average utilization ratio is 50 percent. Raising the credit limit of one credit card can change the average ratio of your credit utilization. If the ratio changes lower, your FICO score can generally go higher. With each monthly payment you make, your utilization ratio as well as your FICO score could change. This is why the FICO score is a fluid score. Also, based on the credit bureau you may get slightly different FICO score due to variations of their calculation methods.