If I said it once, I have said it a thousand times; Credit card debt is not the enemy, but your spending habits.
Your credit utilization rate is the second highest factor in calculating your total credit score. It represents 30 percent of your total score. It’s only second to your payment history, which is 35 percent of your total score. Knowing this, the two most important factors in keeping your credit healthy is avoiding overuse of your credit cards and paying your bills on time.
Do I overuse my credit cards?
The total amount of your credit card debt should always be below 30 percent utilization. What does this look like? If your credit limit on your credit card is $ 1,000, your credit balance should never exceed $ 300. Exceeding 30 percent utilization can have serious implications on your credit score. How much? From personal experience, my credit score dropped more than 30 points. I was at 32% utilization due to an emergency and when I was able to reduce it to 28%, my score recovered and went up 32 points.
If you’re in debt to your core, it could affect more than your peace of mind and your credit score. In fact, it could cost you more money. Creditors may not loan you money if you constantly approach your credit card limit. You are considered high risk because you are spending more than you earn. If a creditor lends you money, you may have to charge a high interest rate on your credit account.
How can i fix it?
Overuse of credit accounts is part of a bigger problem than 30 points on your credit score. It is a symptom of bad spending habits, which can become costly and frustrating as time goes on. Building debt has never served anyone. It is imperative to start developing healthy spending habits if you have noticed that you are consistently exceeding 30 percent utilization.
The first thing to do is pay off your debt at less than 30 percent utilization. Make a plan, create a budget, and stick to it. Make the distinction between wants and needs.
Once your debt is below 30 percent utilization, make sure it doesn’t exceed 30 percent. While it can be uncomfortable to change your spending habits, the long-term effects will give you more peace of mind, a higher credit score, and the ability to secure a healthier financial future.