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Not Using Credit Cards to Boost Score

By Sally Maison
Published: Sunday, September 6th, 2009

People are always advised to put to good use whatever they have. However, credit cards are not one of the things that consumers should use too often. Credit specialists like Mark Huffman advise consumers to keep their card balance as low as possible since it has huge impacts on the financial score or rating that they have. He adds that high credit utilization means low financial score.

Not Using Credit Cards to Boost ScoreCredit utilization is the amount of purchasing power a consumer has. It is also known as debt to credit ratio. It is computed according to the amount of debt a consumer has in his card in relation to his limit. For example, a person uses $7,500 in his $15,000 limit. Therefore his credit utilization is 50% or he used up half of his total limit. Debt to credit ratio is significant because if makes up 30% of a consumer’s financial rating or score.

Recently, financial experts consider 50% credit utilization a good figure. However, the economic crunch came, and lately, the new credit regulations. Because of this, most lending companies have become more skeptical at the ability of consumers to pay. They are also employing additional measures to maintain their profit. As a result, the standards of banks and other lending companies or groups for credit utilization have risen. Now, many financial experts say that the good debt to credit ratio is 25%. Some even go to as low as 10%. That is like using only $1,100 in a credit limit of $11,000.

This might be tough for many Americans who use their cards regularly on their daily spending. However, finance gurus say that it is all worth it. They remind consumers that those who have poor financial scores have great difficulty in refinancing loans and acquiring more credit.
Credit experts say that another good reason why consumers should keep their credit utilization low is the sudden cuts in limits. Lending or card companies have lately been cutting off the limit of their clients. Even those who pay their bills on time and pay more than the minimum due are not exceptions.

Fortunately for those who know better than using their cards daily, their financial scores or ratings were barely affected. However, those who used up 50% or more of their credit saw their credit utilization soar to 90%.

Finance specialists say that cutting off on luxuries might be the best solution to the cuts on card limits. They advise consumers to determine what they really need and to focus their spending on the most basic necessities.

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