Carrying a balance on your credit card can impact your credit score, but how much of your credit limit should you actually use? We break it down for you.
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It’s important to keep your credit utilization low, but just how low should you go? Here’s a look at what the experts say.
Your credit utilization is one of the most important factors in your credit score—but it can be confusing to figure out how much of your credit card limit you should actually use.
In general, you should aim to keep your credit utilization below 30%. That means if you have a $1,000 credit limit, you should keep your balance below $300.
Some experts even recommend keeping your credit utilization below 10%, but that might not be realistic for everyone. If you’re able to keep it below 30%, you’ll be in good shape.
The reason why it’s so important to keep your credit utilization low is because it shows lenders that you’re a responsible borrower who isn’t maxing out your credit cards. A high credit utilization can hurt your credit score, so it’s best to avoid it if possible.
If you’re having trouble keeping your credit utilization low, consider asking for a higher credit limit from your issuer. This will give you more room to work with and can help lower your overall utilization. Just be sure not to use the extra credit—keep spending under control so you don’t end up in debt!
The 30% Rule
This rule is simple: your revolving utilization, which is your credit card balances divided by your credit card limits, should never exceed 30%. In other words, if you have a credit card with a $1,000 limit, you should never let your balance exceed $300.
The 30% rule is important for two reasons. First, it’s the level at which your credit score will start to suffer. Second, it’s the level at which your issuer may start charging you higher interest rates (or even lower your credit limit).
Of course, following the 30% rule isn’t always easy – or even possible. If you have a couple of expensive items that you need to finance over a few months (e.g., a big-ticket purchase or home repairs), it may not be realistic to keep your balances below 30% of your limit. In these cases, it’s still important to keep an eye on your balances and pay down your debt as quickly as possible to avoid paying interest charges.
How to Use Your Credit Card Limit
Credit card companies assign you a credit limit when you open a new account. This is the maximum amount of money you’re allowed to spend with that card in a given billing period.
Your credit utilization ratio is the percentage of your credit limit that you use in a given month. For example, if your credit limit is $1,000 and you spend $500 in a month, your credit utilization ratio would be 50%.
Most experts recommend keeping your credit utilization ratio below 30% to maintain a good credit score. Some even recommend keeping it below 10%.
You can lower your credit utilization ratio by paying off your balance more frequently or by asking for a higher credit limit from your card issuer.
When to Use More Than 30% of Your Credit Card Limit
You’ve probably heard that you should only use 30% of your credit card limit. But what if you have a high limit and want to use more than 30%?
Here are some situations when it might be OK to use more than 30% of your credit card limit:
1. You have a high credit limit and can pay your balance in full each month.
If you have a high credit limit and can afford to pay your balance in full each month, using more than 30% of your credit card limit shouldn’t hurt your credit score. In fact, it could even help your credit score by showing that you’re using a larger portion of your available credit.
2. You need to make a large purchase and can’t afford to pay it off right away.
If you need to make a large purchase and can’t afford to pay it off right away, using more than 30% of your credit card limit may be necessary. Just be sure that you can afford the monthly payments and that you have a plan to pay off the balance as soon as possible.
3. You’re trying to improve your credit score.
If you’re trying to improve your credit score, using more than 30% of your available credit may help. This is because one of the factors that determines your credit score is how much of your available credit you’re using, also known as your “credit utilization ratio.” By using more of your available credit, you can lower your credit utilization ratio and potentially improve your credit score.
The Bottom Line
The bottom line is that you should try to keep your credit card balance below 30% of your credit limit. This will help you keep your credit score high and avoid paying interest on your balance. If you can swing it, paying off your balance each month is even better.