How Does Credit Utilization Affect Your Credit Score?

The less need you have for something, the more willing people are to give it to you. This is especially true of credit. If you have one million dollars in your bank account, banks will not think twice before lending you another million, but if you needed to buy and furnish a house for a million dollars, couldn’t you just use the money you already have? 

Conversely, when you need to borrow money but have little money already in savings, it is virtually impossible for lenders to lend you the full amount you need. They will either agree to lend you a lesser amount or, if they agree to lend you the amount you need, the interest and fees will be so high that you will probably decide that you cannot afford to borrow it. 

Likewise, one of the factors that determines your credit score is your credit utilization. Credit utilization is not simply the credit limit on your credit cards. It is also about how much credit you have available. This is just one of the ways that the rich get richer while you continue to live from paycheck to paycheck. If you come close to maxing out your credit cards every month, contact an Oakland lawsuits, collections, and creditor harassment lawyer.

What Should You Do if Your Credit Utilization is Too High?

Your credit score depends on several factors; one of them is credit utilization. Credit utilization is the balance on your credit cards compared to the credit limit. According to the credit bureaus, the ideal credit utilization is anything less than 30 percent. In other words, if you have a credit card with a $5,000 limit, the credit card bureaus frown on you carrying a balance greater than $1,500. Keeping your balance below $1,500 is enough of a challenge when most of us are in such a financial pinch that we routinely use our credit cards for necessities such as groceries. Now, consider that a credit card with such a high credit limit is only available if you already have a well-established credit history. If your credit limit is only $1,000, then it counts against you if the outstanding balance is more than $300.

The good news is that credit utilization is not the only factor that affects your credit score. Consistently making payments on your credit cards and other loans helps your credit score, even if you only pay the minimum payment. Of course, paying just a little bit more than the minimum payment each month will bring down your balances over time. If you rent your apartment, then paying your rent does not always help your credit score, but it should. If your landlord does not already use a rent reporting service, you, as a tenant, should enroll in one yourself.

Contact the Law Office of Melanie Tavare About Raising Your Credit Score

A debt relief lawyer can help you improve your credit score. Contact the Law Office of Melanie Tavare in Oakland, California, or call (510)255-4646 for a free case evaluation.