Managing Credit

Although maintaining a balance of our hectic day-to-day lives along with our family, friends, and finances can indeed be a bit of a whirlwind—it doesn’t have to be!

Here are some tips on managing your credit health:

Keep Your Credit Card Utilization Under 15%

Many financial experts suggest that your credit card use should be kept under 30%. But what is truly the “ideal” credit utilization ratio? The answer to this may vary depending on where you are in life. If you are just starting out in the world of credit,  or have recently paid off your credit card debt (congrats!), then you will want to remain in the habit of keeping your utilization low as possible. High use of your cards indicates to creditors that you may be low on cash and “needy” for credit. And we recommend that you aim to keep your credit card use below 15%. Additionally, because this ratio is based on your total available credit limit, those who have less credit available to them, may be at risk of going over this ideal threshold.

For example: A person with 2 credit cards with a total limit of $1000 and $2000 respectively, who has used $500 on their first, and $1500 on their second, would have a utilization ratio of a gigantic 75%! This would no doubt reflect poorly on this individual’s credit score. On the other hand, a person who makes a routine payment of $2000 per month on two cards, for all of their basic bills, (e.g., car payments, insurance, household bills, student loans, etc) who has an overall credit limit of $10,000 would only have a utilization ratio of 20%.

For this reason, it is a good practice to at first, only use your credit cards for minor purchases until you get used to managing your balances. This strategy will also prevent you from becoming credit card dependent which if not remedied early on, can set you up for a future of credit card debt and credit mismanagement.

While somewhat of an antiquated term, the credit industry surely remains well-aware of the meaning behind it. In the older days, those who paid off all of their debts in full and on time where known as “deadbeats” as the creditors knew that they could not make their money back from these individuals in interest payments and late fees. Ironic right? By paying off your balances in full (or at the highest amount you can feasibly afford) you will be able to avoid accumulating monthly interest charges.

Only request credit when absolutely necessary. By only applying for the credit you need, you will be able to keep your overall inquiries low, which will reflect positively on your credit score. In addition, too many requests for credit will frequently result in many of your applications for credit being denied. When it comes to credit cards, many issuers have limits on the amount of new credit card accounts that you have opened in the last three-four years before you can obtain a card. This is often done to eliminate traffic from those who routinely apply for new credit cards to reap hefty sign-up bonuses (not inherently bad, but as you can imagine, can be costly for credit issuers). You can see why that may be problematic for creditors. For this reason, if you have applied for more than a few new credit cards recently, there may be a waiting period before you can apply again and be approved. Just keep in mind.

A routine check of your financial health should be as routine as a doctor’s visit (hopefully you go to those regularly as well), or oil change (or ions if you’re in the EV collective). Nothing sears more than expecting one thing out of your checking account, then ending up with something much different (think of a past trip to Vegas for instance). Getting in the habit of checking your balances once a month will give you greater control in knowing where your money is going. Luckily, many banks and credit card companies are now starting to offer breakdowns of monthly spending for their customers. If your bank offers this, you can sign up for the feature in your account. You will be provided a monthly graph of sorts that will highlight your spending categories so that you can make adjustments as needed.

If you really want to hone in on your spending, take some time out every week to budget out your expenses and review things closer. Take the steps to get into the habit of checking your finances frequently so that nothing comes up as a surprise later!

Check out these articles on managing credit and loan products efficiently.