Credit Utilization

Credit Utilization is a measure of how much of your available credit you're currently using. It's expressed as a percentage, and it's calculated by dividing the amount of credit you're currently using by the total amount of credit available to you.

For example, if you have a credit card with a $5,000 credit limit and you currently have a balance of $2,500, your credit utilization rate would be 50%.

Credit Utilization is an important factor in determining your credit score. Generally, the lower your credit utilization rate, the better your credit score will be. That's because lenders and credit bureaus see high credit utilization as a sign that you may be overextended and more likely to miss payments or default on your debts.

To keep your credit utilization rate low, there are a few things you can do:

1. Pay off your balances in full each month.  If you have a credit limit of $2000 and every month you spend $1500.   If you pay it off every month it will still appear to your credit score as if you owe $1500.  This would be a 75% utilization rate and would have a negative effect on your credit score.  If you pay it before the statement prints it will decrease your utilization.

2. Use multiple credit cards: If you have multiple credit cards and one of your cards is maxxed out while the others have a very small balance the maxxed out card will have a significant negative effect on your credit score.  It is better to have Balanced Credit Card Usage.  

3. Increase your credit limit: If you're consistently using a high percentage of your available credit, you may want to consider asking your lender for a credit limit increase. This can help lower your credit utilization rate as long as you don't increase the balance you carry on your card.

4. Make more frequent payments: Making more frequent payments can help keep your credit utilization rate low. For example, if you have a credit limit of $5,000 and you make a $2,500 purchase, you could make a payment of $1,250 before the billing cycle ends to keep your credit utilization rate at 25%. 

By keeping your credit utilization rate low, you can improve your credit score and increase your chances of getting approved for increased credit in the future.

Pay off All of your Credit Cards Every Month
This is very important, it is very easy to pay the minimum on your credit card or just a partial payment.  This leads to big trouble.

If you have ever listened to a Dave Ramsey show you will realise that it is really easy to borrow yourself so far in debt that it takes almost forever to pay it back.  You are not the US Government, you have to pay off your debts.