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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Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.

 

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