If my score changes, I will often call my parents to conference about it (whether they want to or not). I recently gave an impromptu subway lecture about the importance of your credit score for future purchases to a friend who funds his life with a debit card, which doesn’t build credit. Though I haven’t quite reached the point of bringing it up on dates, I may have a preferred range of credit scores in mind.
I can pinpoint the moment when I became this way. It was the day I learned—while reading a LearnVest article, in fact—the definition of one little phrase: credit utilization.
Credit utilization, one of the factors that has the highest impact on your credit score, is the percentage of your total available credit that you are currently using (you can calculate this by taking the total of your credit card balances and dividing it by the total of your credit card limits). Those with the best credit scores keep their credit utilization rate below 30%.
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Up until that point, I’d assumed that I had as good a credit score as was possible for a 21-year-old. When I turned 18, I opened a credit card, which I paid off in full and on time every month. But this whole credit utilization thing appeared to be a game-changer.
I only had one credit card, with a low limit of $700, since I was in college and only employed part time. Never one to carry around cash, I used the card for most of my expenses, including groceries, books, gas and entertainment. This brought my balance up to about 50% of my limit more months than not.
Even though I always paid my bill in full at the end of each month, I learned that depending on when the bank reported to the credit agency, my score could be taking a hit for my relatively high credit utilization.