Many people understand that the responsible use of credit can be helpful to meeting financial goals in life. That being said, what is the common ground?
To answer that question, we’ll need to better understand what credit utilization means – let’s use an example to break it down a bit. Let’s say; you open a new credit card and the total credit limit is $10,000. Then you charge, x, y, z totaling $5,000. Based on this scenario, your current credit utilization is sitting at 50%. In reality, you want to keep this under 30%. This provides lenders with the confidence that you can consistently pay this amount as agreed and on time every month.
As the amount you owe on your credit card for example increases, your credit score has the potential to be negatively impacted. To make sure this doesn’t happen it’s important to be mindful of your long-term goals. Will a purchase help assist you in your financial journey? Does it push you closer or away from your goals? As our time indoors increases, it’s especially vital to refrain from emotional spending or making large purchases, while under any emotional duress. Lenders want to have the confidence that you have the ability to pay any and all credit obligations no matter your personal circumstances.
Unsure of your total credit amount? Login to your accounts, contact your lender representative and/or check your most recent credit statements. Compute some simple math and determine how much is currently owed to all of your lenders. Remember, credit utilization is 30% of your FICO® Score so be diligent and work toward reducing that factor if necessary. If this seems like a large feat, break it up into manageable doses. Create a personalized payoff plan that includes a reasonable amount you’re able to afford and incorporate it into your budget. Extra money such as bonuses, monetary gifts or side hustle funds can always be allocated to expedite your payoff plan.
The journey to reducing debt is a marathon; don’t overextend yourself! In the instance you’re unable to make any additional payments, refrain from making additional purchases using credit. Remind yourself often that your commitment to debt reduction elevates the financial health for you and your family. Dedication and patience are key.
Stay the course.
I am an official brand ambassador for FICO. While I receive compensation for my participation as a brand ambassador, opinions are mine.