How Much Credit Should I Have and Does It Affect My Credit Rating? – Councilor Forbes

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At first glance, it may seem like you can’t change the amount of available credit you have. After all, your credit card company gives you a limit when you open a card with little or no input from you on how much credit you want. But the reality is, there are a lot of things you can do to affect your available credit. You can request an increase or decrease in your credit limit, pay off your balance, or request another credit card.

We’ll show you why you would want to change your available credit and how much you should have.

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What is the available credit?

Your available credit is the amount of money you have on your credit cards based on your current balance. For example, if your credit limit is $ 2,000 and your balance is $ 500, your available credit is $ 1,500 ($ 2,000 – $ 500). If you have two cards, each with a limit of $ 1,500 and a balance of $ 200 on one card, your available credit is $ 2,800 ($ 1,500 + $ 1,500 – $ 200).

What is a good amount of available credit?

There is no set amount of credit available that is good to have. In general, the more credit you have available, the better, as long as you use it responsibly.

During any application process, most lenders will review your credit utilization rate instead of your available credit. Your credit usage is the ratio of your overall balance to your overall credit card limit. It shows the amount of credit you are using. This gives them an accurate understanding of your specific credit situation.

For example, if you have a credit limit of $ 2,000 and a balance of $ 500, your credit utilization rate would be 25% ($ 500 / $ 2,000); if you have two cards, each with a limit of $ 1,500 and an overall balance of $ 200, your ratio would be almost 7% ($ 200 / $ 3,000).

Most financial experts recommend keeping your credit utilization rate below 30%, and the lower the better.

How Your Available Credit Affects Your Credit Score

How much debt you have represents 30% of your credit score. That being said, the lower your credit utilization rate, the higher your score is likely to be because you will have more credit available. According to an Experian report, here are the average credit utilization ratios for each FICO credit score range.

Can Too Much Available Credit Affect Your Score?

In general, no. The more credit you have available, the lower your credit utilization rate is likely to be, resulting in a higher credit score.

However, if you are the type of person who views your available credit as a free license to increase your debt, more available credit could backfire. For example, if you ask for an increase in your credit limit and then spend up to that limit, accessing more credit can hurt you more than it helps you.

There are cases of fraud or identity theft where someone can maximize your credit card. So, asking for a lower limit on your cards also limits the amount of funds that can be stolen from a single card, while possibly leaving you with an available balance with the remaining cards that were not stolen.

How Much Credit Should You Have?

The total amount of credit you should have depends on your situation.

Some people like the idea of ​​using their credit card as a de facto emergency fund, so they prefer to have enough credit to pay for three months of living expenses. Keep in mind that it is better to have a emergency fund stored safely in a savings account because you’ll earn interest on your savings rather than paying interest to a lender later. But if you don’t have it yet, it could be a decent (albeit expensive) plan during a temporary setback.

Others prefer to have a smaller total credit so that they are not tempted to accumulate a large balance. Remember, however, that it’s not the total amount of your credit that matters, it’s the amount of your total credit that you use. If you take this approach, it’s always a good idea to keep your balances low against your total credit limit. You can ask the card issuer to reduce the available credit during the approval period of a card.

How to use credit responsibly

If you are like most people, it is quite possible to win a good credit rating as long as you are doing a few things right. Regarding the credit available, here are some steps that can help you to improve Where build your credit score:

  • Request a credit limit increase. Most credit card companies are willing to increase your credit limit if you have been a responsible cardholder. As long as you don’t spend more money, it gives you an instant boost to your available credit and lowers your credit utilization rate.
  • Pay off your balances. If you have a balance, the best you can do is pay it off. It also increases your available credit and can help improve your credit.
  • Pay off your card in full each month. The best long-term habit you can make is to pay off your credit card in full each month before the due date. An easy way to do this is to sign up for automatic payment or make multiple payments throughout the month.
  • Open a new credit card. It also increases your available credit, as it will increase your overall credit limit.
  • Keep old cards open. If your old credit cards don’t have an annual fee, it’s a good idea to keep them open. If you close them, you lose that available credit and your credit utilization rate may increase.

Increase your FICO® score instantly with Experian Boost ™

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.

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