Credit utilization makes up about 30% of your credit score and yet most Americans don’t understand what credit utilization is. The concept is relatively straigh forward and is expressed as a percentage. Generally, the higher your credit utilization percentage the lower your credit scores. When working on credit repair, be sure to pay attention to credit utilization.
Each item that is on your credit report has a figure assigned to what credit is available to you. This might be the beginning loan balance or your credit limit on a credit card. If you have a mortgage and the mortgage was for $100000 then your credit available was $100000.
Now if you have paid on that mortgage and now only owe $50000 this is considered your Credit Debt. So if you had a mortgage for $100000 and still owe $50000 to the bank, your credit utilization is figured as follows:
Credit Available = $100000, Credit Debt = $50000, Credit utilization is 50%.
Keeping your credit utilization close to 30% is ideal and what most lenders are looking for. Remember, keeping your utilization down will help your credit score.
Most lenders want to make sure that your revolving, or non-secured credit is kept at or below 30%. This means that if you have credit card debt, keeping it below 30% will be best and make lenders much more comfortable when looking at providing you with credit.
Mortgage lenders that see you keeping your utilization down are more likely to provide you with a loan because they feel that you are managing your credit properly. Having a high credit utilization also means that you could be more likely to have a problem than one that has a lower credit utilization percentage.
Take the time to review your credit report. Pencil out what your credit utilization is and then look to see what you can do to reduce that number. The lower the number the better your credit score.
