What happens if I use 90% of my credit limit?

Credit Limit Utilization: The Impact on Your Credit Score

Your credit limit is the maximum amount of money you can borrow on a credit card. While it’s important to have available credit, excessive utilization can have negative consequences for your credit health.

30% Credit Utilization Threshold

Credit reporting agencies generally recommend keeping your credit utilization below 30% of your credit limit. This means if you have a $1,000 credit limit, you should not consistently spend more than $300 per month.

Consequences of High Credit Utilization

Exceeding 30% of your credit limit signals risk to lenders. They may view you as a higher risk borrower and charge higher interest rates or reject future credit applications.

High credit utilization negatively impacts your credit score. Credit scores consider your payment history, credit utilization, and other factors. A high utilization ratio indicates that you are nearing your borrowing limit, which can lead to lower scores.

Maintaining Low Credit Utilization

To maintain a healthy credit profile, it’s crucial to keep your credit utilization low. Here are some tips:

• Pay down your balance frequently. Instead of waiting for your monthly statement, make regular payments to reduce your outstanding debt.
• Use multiple credit cards. If you have multiple credit cards, spread your purchases across them to keep your utilization ratio low on each card.
• Increase your credit limit. If your spending habits justify it, request a higher credit limit from your card issuer. This will increase your available credit and lower your utilization ratio.

Conclusion

Maintaining low credit utilization is essential for a strong credit health. By avoiding excessive spending and utilizing credit responsibly, you can protect your credit score and improve your chances of securing favorable credit terms in the future. Remember, credit utilization is a key factor that lenders consider when evaluating your creditworthiness.