Poll: Almost 60% don’t know if high credit card balances

Most Americans aren’t sure exactly how their credit card balances affect their credit scores, according to a new survey by US News.

Of those who indicate that they understand there is a relationship between the two, almost four in 10 say that a high credit card balance increases their credit score, which is incorrect.

How Your Credit Utilization Rate Affects Your Credit Score

Your credit utilization rate is the amount of credit you used compared to the amount of credit you have. This is important to know because your credit usage represents 30% of your FICO score. To avoid hurting your credit score, your ratio should be less than 30%. But consumers with high credit scores tend to have ratios below 10%.

While the survey in early December shows that a majority don’t understand how usage ratios affect their scores – around 24% say a higher ratio is better, and nearly 36% say they don’t know – it there is good news to report. Just over 40% of respondents select the correct answer: The lower your ratio, the higher your score.

When asked what their credit usage rate is on their credit cards, almost 8% don’t know. But overall, most respondents know their ratios and state the following:

  • Just over 37% maintain a ratio of 10% or less.
  • Almost 80% maintain their ratio at no more than 30%.
  • About 13% have ratios between 31% and 50%.
  • 7% have ratios greater than 50%.

Another important fact to know about ratios: the FICO algorithm considers your ratio on each credit card as well as your ratio on all your credit cards. A high balance on just one credit card can further decrease your score. So if you have a card with a ratio greater than 30%, then focus on reducing the balance on that card.

Beware of high limit credit cards during holiday shopping

With the holidays here, consumers are likely to buy more with their credit cards. And since some purchases will be expensive, like a new laptop, it makes sense to use a high limit credit card.

Typically, high limit credit cards have a credit limit of at least $ 5,000. In the survey, over 59% of respondents indicate their limit is between $ 10,000 and $ 24,999. And almost 12% have a credit limit of $ 25,000 or more.

With high credit limits, it can be hard to remember that you should always keep your cash flow in mind. It’s important to have a budget for the holidays so that you don’t spend more than you can afford when the balance is due. Unfortunately, many Americans are in debt month after month.

Most carry a credit card balance

Almost 39% say they always pay off their balance in full every month, which I recommend doing when using credit cards. But the survey results also show that many respondents have a balance on their credit cards.

Here are the findings among those who wore a scale:

  • About 36% say they rarely carry a sale.
  • 23% carry a balance for two to three months.
  • Over 17% carry a balance for four to six months.
  • More than 23% carry a balance of more than six months.

It is common for high interest credit cards to offer rewards, which means there may be an annual fee. Reward cards also tend to have higher annual percentage rates. If you keep a balance, you’ll pay compound interest on your purchases. This has the potential to offset any rewards you earn, especially if you also pay an annual fee.

Your mantra should be: I will always pay my credit card balance in full by the due date. Repeat it over and over until it becomes a habit. This way you earn rewards and avoid going into debt.

4 ways to lower your credit utilization rate

If you have a balance on your credit cards, promise to pay off your debt in the New Year. But there are steps you can take now to improve your credit usage and increase your credit score.

  • Increase your credit limit. A slim majority – 51% of respondents – have never asked for a limit increase. But of those who requested one, almost 92% were successful. Obviously, don’t do this if your payment history is unstable or if you’ve run out of credit card, as your request will likely be denied.
  • Make two monthly payments instead of one. If you can swing it, making two payments in the month can lower your utilization rate. Call your credit card company and ask when they report your payment history to the credit bureaus. That way, you can make double payments before he gives your information to the offices, which will lower your ratio.
  • Apply for a new credit card. This move increases your available credit. Take your time and compare credit cards to choose the right type of rewards for your spending style. While this strategy improves your ratio, you also want to get a credit card that helps you earn the most rewards. And don’t use a new card as an excuse to spend more.
  • Don’t close credit card accounts. Remember, your ratio is the amount of credit you used divided by your available credit. When you close a credit card, you lose that available credit, which increases your ratio. So don’t close an account unless there is some costly reason like a high annual fee that you can’t afford.

About Shirley L. Kreger

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