Know Your Credit Utilization Ratio

How much credit you've used compared to how much credit you have available is your credit utilization ratio.

Every month, you should pay off your balances in full and by the due date. Carrying a balance on your credit card will get you into debt, so don't do it. But you also need to know how much money you have at the end of the month.

Keep your credit card balance at less than 30% of your limit during the monthly payment cycle. For example, if your credit limit is $3,000, don't let your balance go over $900 ($3,000 x 0.3) at any time during the month. Keep your ratio at less than 10% if you want to see progress even faster.

Also, remember that you can't lie. Let's say you have three credit cards, and the most you can borrow on each one is $1,000. You have a 50% ratio on one card ($500) and a 10% ratio on the other two cards ($100 on each card).

Here's how to figure it out: 500 + 100 + 100 = 700, which is a good credit utilization ratio of 23% (700/3,000).

You might think you're good to go if your overall ratio is less than 30%. But the FICO score looks at not only the total utilization ratio, but also the ratios of each individual credit card.

When you have a card with a 50% ratio, you can't get the most out of this part of your FICO score. With credit scores, you don't get anything for nothing.
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