Many credit experts say you should keep your credit utilization ratio — the percentage of your total credit that you use — below 30% to maintain a good or excellent credit score. Show
Credit utilization is a major factor in your credit score, so it pays to keep an eye on it. View the 30% rule as a good guideline, but be aware that using even less is better for your score. Know how your credit is scored See your free score and the factors that influence it, plus insights into ways to keep building. Keeping up with what percentage of your credit limits you're using is easier than you may think. You can set up alerts with your credit card issuers to track your balances. Or sign up for a free credit score that displays utilization rates. How much of my credit should I use?If there's no bright line, why the 30% rule? It’s likely because the recommendation to keep your credit utilization low invariably prompts the question, “How low?” Having a number gives you an upper limit when thinking about how much to spend on your credit cards. The 30% answer finds backing from the credit bureau Experian: "The 30% level is not a target, but rather is a maximum limit. Exceeding that level will have significantly negative impact on credit scores," says Rod Griffin, Experian’s director of public education. "The lower a person’s utilization rate, the better from a scoring standpoint." The FICO scoring model seems to agree with this conclusion. “Consumers with FICO scores of 800 use, on average, 7% of their available credit,” says Can Arkali, a senior director for FICO. Credit utilization and your scoreHow much you owe on your credit cards relative to your credit limits makes up about 30% of your FICO score. VantageScore, a competitor scoring model, calls credit utilization "highly influential." Note that your credit score is composed of a number of factors. If your overall credit profile is excellent, it’s unlikely that your credit score will plunge if your credit utilization ratio rises slightly one month. And, happily, damage from credit utilization is easily reversed. With the vast majority of scores, as soon as a new, lower balance (or lower credit utilization) is reported to credit bureaus, the harm is undone. What's next?
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Every credit card comes with a credit limit, which is the amount of money you are allowed to borrow with the card. Exceeding this threshold can result in a variety of negative consequences, from credit damage to embarrassing moments at the checkout counter. For this reason, it's important to understand what can happen when you go over your credit limit, and why it's smart to pay attention to your running balance. A credit limit is the maximum amount that you can charge on a credit card. As a revolving credit account, there is no predetermined payoff date for the amount you borrow. You can charge up to the credit limit and pay at least the minimum amount due, with any remaining balance shifted over to the next month—with interest added. The credit limit that's attached to your card is determined by the issuer when you apply for the card, and depends on three basic factors:
Be aware that a credit limit and available credit are two separate concepts. The credit limit is the amount that you can borrow, but the available credit is the amount you can borrow minus any outstanding debt. So if your credit card has a $5,000 credit limit, and you owe $4,000 on it, your available credit is $1,000. How Does Going Over Your Credit Limit Work?Depending on your credit issuer, you may be able to spend more than the credit limit that's attached to your account. Instead of the transaction being declined when you attempt to pay, it can go through as long as the issuer allows it. That can happen if you have a long history of treating that account responsibly. You may also have opted in for over-limit protection, which gives you the opportunity to charge more than your credit limit. But there are several negative consequences you may face for going over your credit limit. What they can be depends largely on the credit issuer's policies and your credit history, as well as whether you opted in for over-limit protection. Common outcomes include:
How Going Over Your Credit Limit Can Affect Your CreditCredit utilization is one of the primary factors in the two most commonly used credit scores: FICO® Score☉ and VantageScore®. Utilization is usually expressed as a percentage; it'll show how much of your available credit you're using on a per-card or a total basis. A low credit utilization ratio is attractive to lenders and positively impacts a credit score because it shows that you're using credit cards as payment tools for things you can afford. Conversely, charging more than the limit can be an indication that you are having financial problems. As a general rule, it's best to keep your
total credit utilization rate to below 30%. Practically speaking, this means that if your credit card's limit is $10,000, for example, the balance you roll over to the next month should be less than $3,000. When it comes to your utilization rate's effect on your credit scores: the lower, the better. How to Avoid Charging Past Your Credit LimitIt can be easy to lose track of how much you're spending with your credit card and then find yourself dangerously near the limit. You can avoid this situation with a few strategies:
Read Your Credit Report to Stay InformedAlthough going over your credit limit on the rare occasion isn't a tragedy, it's best to not make it a habit. Reviewing your credit report on a regular basis will also help you maintain awareness. You can access your free Experian credit report any time you want. There are no credit scoring repercussions for checking your own report, and
you'll know what information is being factored into your credit scores. What happens if you spend all your credit limit?If you go over the credit limit set by your card issuer, you may be charged high fees or interest penalties, take on lasting high-interest debt, and even affect your credit score.
Can you use your entire credit limit?Can you go over your credit limit? Yes, you can go over your credit limit, but there's no surefire way to know how much you can spend in excess of your limit. Card issuers may consider a variety of factors, such as your past payment history, when deciding the risk of approving an over-the-limit transaction.
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