Credit Utilization Impact on Your Credit Score

- Hi, I'm Jean Chatzky, and this your SavvyMoney Minute.

- [Announcer] Brought to you by Credit Union of Southern California.

- So you wanna raise your credit score so you can get lower credit card interest rates, easier credit, even better new job prospects? You need to understand credit utilization. I know it sounds complicated, but it's simple. It's a ratio, how much credit you have versus how much you use, and it can make up to 20% to 30% of your credit score. Example, say you have an outstanding balance of $400, your credit lines, $2,000. Divide your debt by your credit. In this case, it's .2 or 20%. That ratio is great. A credit utilization ratio of under 30% helps your score. One common mistake, thinking that closing a credit card account will raise your score. Our friend Laurie did that, but look at her ratio. Fewer cards means a lower credit limit. To raise her score, pay down her balances by $1,000 and keep her credit lines open at $5,000 and she's at 20%. Here's comes a better credit score and better financial health. I'm Jean Chatzky for your SavvyMoney Minute.

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