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Study Hall: Credit Cards & Credit Utilization: What You Need to Know | Shonda Martin
Aug 2, 2024
Shonda Martin, a credit educator and expert in credit utilization, breaks down the essentials of managing credit for better financial health. She explains the significance of credit utilization and how it affects credit scores. Learn how to calculate your credit utilization ratio and discover tips for maintaining an ideal rate of 1-3% to optimize your score. Shonda also highlights common pitfalls, including the impact of student loans and charge-offs, offering vital advice for planning future credit applications.
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Quick takeaways
- Credit utilization constitutes about 30% of your credit score, making its management essential for financial opportunities.
- An ideal credit utilization rate of 1-3% is crucial, as exceeding this can negatively impact your credit score and borrowing power.
Deep dives
Understanding Credit Utilization
Credit utilization is a critical aspect of your credit profile, accounting for approximately 30% of your credit score. It reflects the percentage of available credit that you are currently using, which is calculated by dividing your total balances by your total credit limits. An ideal utilization rate falls between 1% and 3%, as anything higher, such as the industry standard of 30%, may hinder your credit score from improving. Monitoring this ratio closely is essential, especially when preparing to apply for new credit, as it can significantly impact your borrowing power.
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