What is Credit Utilization or Credit Card Utilization? Beginner’s Guide

Increased Credit Card Utilization is a silent killer of your Credit Score and in most cases, it happens because of you being careless.

Uncontrolled spending with your Credit Card will always lead to maxed out your Credit Card and that way you loose Credit Score.

Today’s article is all about Credit Card Utilization. So let’s get started.

Outcomes of this article

By the end of this article, you will learn:

  • What is Credit Utilization or Credit Card Utilization?
  • What happens if your Credit Card Utilization Ratio increase?
  • What is the best credit utilization ratio for a healthy Credit?
  • How to Control your Credit Utilization Ratio?

# What is Credit Utilization or Credit Card Utilization?

Credit Utilization or Credit Card Utilization (both are same) is the amount of money you spend with your Credit Card, with respect to the maximum Credit limit available.

Increased Credit utilization is not a good habit and does you know what happens next!

# What happens if your Credit Card Utilization Ratio increase?

  • In most of the cases, your Credit Score will decrease drastically.
  • Even if your Credit Score is good, you may not get approval to a new Credit Card.
  • Credit issuers will reduce your Credit Limits if they notice increased utilization.
  • Credit Issuers may ask you to pay the balances in full amount.

# What is the best credit utilization ratio for a healthy Credit?

35% is referred as the best credit utilization ratio for keeping a healthy Credit.

People says that it is a myth, but I wouldn’t say it. I personally have experienced bad things because of the increased usage of Credit Cards.

I lost over $3,000 Credit limit from my $7,000 AMEX card because of increased utilization.

Always remember my story before you over spend with your Credit Cards.

In Conclusion

How to Control your Credit Utilization Ratio?

Having multiple credit cards is the best way to control your credit utilization ratio. In that case, you can control it by maintaining the overall credit utilization below 35%.

 

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