How To Correct Your Credit Utilization Ratio

If your credit card balances every month are more than 30% of your credit limits, your score is suffering, even if you’re paying off your balances in full every month by the payment due date. That’s because your statement balance is most likely what’s being reported to the credit bureaus is a credit balance above 30%

The debt-to-credit ratio is definitely considered one of the more important factors that help determine consumer credit. This is also why it is not recommended that you close any unused credit card accounts you have as a way to try and raise your credit scores. Doing so will affect your utilization ratio percentage and can actually do more harm than good.

If you do decide to close any consumer credit account, then make sure you are able to maintain a 15% utilization percentage without having that credit card. If not, you should consider other options regarding that credit card such as replacing that account with a new credit card account just to keep up with your good credit utilization ratio.

Your debt-to-income ratio also plays a big role regarding your credit and is basically all of the monthly debt you have divided by your gross monthly income. Lenders often use the debt-to-income ratio to determine if you will be able to make your payments each month.

The difference between the credit utilization ratio and the debt-to-income ratio is that the credit utilization ratio is the only one that will impact your credit score. The debt-to-income ratio is used by lenders and can be very influential when it comes to extending credit which is why it also plays a significant role and should also be monitored as you would your credit utilization.

Like we said earlier, improving a poor credit score takes time, but it’ll be completely worth it. Constantly worrying about being approved for loans, mortgages and new credit cards is not something you want to be doing for the rest of your life.

Following these tips will not only save you money but also teach you the valuable skills necessary to maintain a good credit score in your future. If you have bad credit, don’t give up on credit entirely. Instead, be responsible and stay educated about your accounts and scores so you can successfully handle your own finances and find a credit repair plan that works well for your situation.