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Credit Utilization During the Holidays May Lead to Credit Help Later

  • By Credit Diva of Dallas
  • 10 Dec, 2020

Have you been keeping a close watch on YOUR credit utilization ratio? Now that the holidays have officially begun, people are starting their shopping, whether it's primarily online or distanced in person. If you’re buying gifts, food, or decorations, that spending can quickly start to pile up.

Some people pay cash for all their purchases—but if you’re like a large part of the population, you’ll be using some credit cards to do your shopping.

Excited african american woman holding credit card and shopping bags isolated on blueThere are many benefits to using credit for your holiday purchases: for one thing, you can earn rewards and cashback while charging your purchases. However, at the same time, you want to be sure you are using the credit responsibly—or you will need credit help later after the damage catches up to you.

One important key to maintaining good credit is keeping your credit utilization ratio in the proper range. Let’s take a look at what that means as we head deeper into holiday spending.

What Is Your Credit Utilization Ratio?

Your credit utilization ratio is simply the amount of revolving credit you are currently using compared to the total amount you have available.

It’s easy to figure out what your credit utilization ratio is. First, add up the credit card debts you have and divide that by the total amount of available credit you have. Since you want your answer expressed as a percentage, you will need to multiply the final result by 100. Here are a couple of examples:

  • If you have a total balance of $5,000 and your credit limit is $10,000, then your credit utilization ratio is 50% (5,000/10,000 = .5 x 100 = 50)
  • If you have a total balance of $3,000 and your credit limit is $10,000, then your credit utilization ratio is 30% (3,000/10,000 = .3 x 100 = 30)
  • If you have a total balance of $2,000 and your credit limit is $10,000, then your credit utilization ratio is 20% (2,000/10,000 = .2 x 100 = 20)

These are examples of your credit utilization ratio for all your credit cards, but you could check your ratio for individual cards as well.

How Do Creditors View Credit Utilization?

So, now you might be wondering:

  • Does your credit utilization ratio affect your credit score—and does it even matter?
  • Do creditors care about this ratio?

Beautiful african american woman sitting in velour armchair near payment terminal with check, shopping bags and giftsWhen your credit utilization ratio is more than 30%, it’s going to hurt your credit score. In fact, it could lower it and cause you to lose out on better interest rates! By keeping that utilization ratio below the 30% level, you will have more opportunities and better credit health—and be less likely to need credit help later. Some people even see their credit score go up when the utilization ratio drops.

  • If you’re wondering how you can keep your ratio beneath that 30% target, the most obvious way is to keep an eye on your balances.
  • Make sure to pay your balances down so they don’t rise above 30%. However, you could also add another credit card or line of credit to your portfolio.
  • Another credit card will increase your total credit limit, which means your ratio will automatically go down.

Using the above example, if you increase your credit limit from $10,000 to $15,000, then your new credit utilization ratio would be 33% if you had $5,000 in debt. If you paid down the balance just a bit, you would be at 30%.

Expert Credit Repair in Dallas Can Help!

If you’re not sure where you stand with your credit score or credit utilization ratio, then now is the ideal time to ask for credit help. With the holidays upon us, you don’t want to take a chance of there being any problems with your credit.

Get in touch with a Certified Credit Diva here at Credit Diva of Dallas! We can help you get back on the path to financial freedom and fitness in time for those New Years' resolutions!

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