(ModernSurvival.org) – Unfortunately, many people get credit cards but have no idea how to use them without getting themselves into debt. The knowledge of using credit cards, and how they affect a person’s credit score, isn’t taught in most schools. Faster than many realize, they are buried in credit card bills and their credit score is plummeting.
Thankfully, improving one’s credit score using credit cards isn’t that hard. Here’s how it’s done:
What is Credit Utilization?
A person’s credit utilization is the total amount of their available credit that is being used. It is calculated from open lines of credit, such as credit cards, home equity lines of credit and personal lines of credit. But why should anyone be concerned about their credit utilization?
A person’s credit utilization ratio (CUR) is important because it is one of the main factors used to calculate their overall credit score. As a general rule, the lower the credit utilization ratio, the higher the credit score. In short, the more a person spends on credit, the higher their credit utilization ratio will climb, and the worse the impact will be on their credit score.
On the opposite side of the spectrum, having a 0% CUR is also bad. It leads credit reporting agencies to believe that the cards aren’t being used. While this isn’t as bad as having a high CRU, it won’t help a person’s credit score, either.
What’s the Magic Number?
Some experts recommend keeping one’s CUR below 30% while others claim it’s better to have it below 10%. The sweet spot is likely somewhere in the middle, between 10% and 20%. The most important factor is to be sure never to charge more than can be paid off each month.
Using the credit card and paying it off on time shows a person is financially responsible, something lenders like to see. It can also lead to increases in the credit limits on cards, making it easier to maintain a lower CUR.
Using credit cards responsibly is one way to help increase a person’s credit score, helping them to survive in the modern world. Unfortunately, money isn’t always easy to come by, especially during times of economic hardship. Take a look at our article on how to preserve your income in an unstable economy for tips on overcoming such times.
~Here’s to Your Survival!
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