Ideal Credit Utilization Ratio

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AceH
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Ideal Credit Utilization Ratio

Postby AceH » Wed Mar 24, 2010 1:53 pm

I've heard that you should keep your credit card balance within 30% of your total limit. To keep things simple, lets assume you have a credit limit of $1000, you make a purchase for $500 BUT you make a payment of $250 BEFORE your next billing period does this affect your credit score even though for a brief period your were at 50% of your credit limit?


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phanio
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Postby phanio » Thu Mar 25, 2010 1:44 pm

The best utilization rate is zero. I assume you are talking about how to improve your credit - credit agencies can only use what they are given - what is reported - so, if your card company only reports your net at the end of your billing cycle - that may work.

Or, better yet - only spend what you can afford - pay your card off each month and your credit score will take care of itself. Much better than trying to manipulate the credit agencies - especailly since they can change their rules at any time - and have in the past.

Credit cards should be used for short term financing - use them that way and you will be OK - use them for something else and only the card company wins.
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DoingHomework
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Postby DoingHomework » Thu Mar 25, 2010 2:45 pm

It can. The card company will report your balance on a specific day each month. If you happen to have a high balance on that day you will show a high utilization. But if you only do that one month and then keep it low otherwise you will be ok.

AceH
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Postby AceH » Thu Mar 25, 2010 3:21 pm

Last question for now...when you make a purchase with a Secured Credit Card will the company know it's a secured card? Example: If I use the card at an online retailer such as Amazon.com could they tell it's a secured card?

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Mogul of Pineapples
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Postby Mogul of Pineapples » Thu Mar 25, 2010 9:01 pm

I've heard that it's the amount when the billing cycle closes each month that is reported?
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Postby DoingHomework » Mon Mar 29, 2010 1:30 pm

Mogul of Pineapples wrote:I've heard that it's the amount when the billing cycle closes each month that is reported?


I think that is correct. The point though is that it is on a specific day. If you prepay before the closing date then you can keep the utilization low.

A low utilization is good. But the highest balance is also reported on a credit report and I believe that is teh highest balance on the closing date. Having a high highest balance also shows you have effectively managed credit in teh past so I assume that is good as well.

If you have a card and routinely put $20000 a month on but prepay it before the end of the billing cycle you will show a low utilization but your $20k usage will never show up. You will never get "credit" for being able to manage large balances.



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