Balance to Limit Ratio and Its Affect on Credit Score
We all have many credit lines and of various types.
Some can be lines of credit, unsecured credit, secured credit and etc.
Most people don't realize how our balance can affect our credit.
The term is known as, balance to limit ratio.
In simple terms, what it means is the ratio between your balance and limit that you have been assigned on your account.
So for example, if your credit limit is $1000 and your balance is $900 on the account, that's not a good thing! Because you are playing on a fine line.
You see whenever you are assigned a credit limit; the creditor grants that limit to you as a maximum limit, after evaluating the fact you will never reach there.
Now, once you do start spending and get closer and closer to your limit the ratio between your limit and balance starts affecting your score.
The creditor starts reporting these items to the credit agencies, therefore, decreasing your credit rating.
This is a fact not many people know and always question why they are being dinged for carrying a balance which is close to their limit.
You can be one of the most diligent customers to the creditor in terms of paying on time and abiding by all the credit rules, but still the fact your are hovering close to your limit sags your credit score.
We all realize, that having a good credit rating is extremely important, especially in today's economic climate.
The benefits are endless.
You can have a low interest rate, larger limits, longer promotional periods and etc.
So we have to be mindful of using the credit that's assigned and also the affects it has on our credit score.
But overall, you should always be seeking new methods to increase your credit score to avail the financial freedom you deserve.
Some can be lines of credit, unsecured credit, secured credit and etc.
Most people don't realize how our balance can affect our credit.
The term is known as, balance to limit ratio.
In simple terms, what it means is the ratio between your balance and limit that you have been assigned on your account.
So for example, if your credit limit is $1000 and your balance is $900 on the account, that's not a good thing! Because you are playing on a fine line.
You see whenever you are assigned a credit limit; the creditor grants that limit to you as a maximum limit, after evaluating the fact you will never reach there.
Now, once you do start spending and get closer and closer to your limit the ratio between your limit and balance starts affecting your score.
The creditor starts reporting these items to the credit agencies, therefore, decreasing your credit rating.
This is a fact not many people know and always question why they are being dinged for carrying a balance which is close to their limit.
You can be one of the most diligent customers to the creditor in terms of paying on time and abiding by all the credit rules, but still the fact your are hovering close to your limit sags your credit score.
We all realize, that having a good credit rating is extremely important, especially in today's economic climate.
The benefits are endless.
You can have a low interest rate, larger limits, longer promotional periods and etc.
So we have to be mindful of using the credit that's assigned and also the affects it has on our credit score.
But overall, you should always be seeking new methods to increase your credit score to avail the financial freedom you deserve.
