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Liz Weston: What is credit utilization and how is it calculated?

Dear Liz: Our credit scores are within the low 800s. We all the time pay all credit card balances off earlier than the following billing interval.

We are presently charging a cruise for us and our daughter and her husband. We’re nervous about utilizing an excessive amount of of our obtainable credit and thus lowering our credit scores. We’re utilizing one credit card and paying half the steadiness this billing interval and the remainder on the following billing interval.

I’ve by no means been capable of calculate the “credit utilization,” however I’m positive we’ll exceed it for the following two months though we pays the quantity charged in full. With this huge cost, are you able to counsel anything we are able to do?

Answer: Your credit utilization is merely the quantity of obtainable credit that you simply’re utilizing. If your card has a $10,000 restrict and you make $5,000 in prices, your credit utilization ratio is 50%. (If you’re unsure what your credit restrict is, you may verify your account on-line or name the quantity on the again of your card and ask.)

In basic, the much less of your obtainable credit you employ the higher.

The steadiness that issues for credit scoring functions is the steadiness that’s reported to the credit bureaus — and that’s sometimes what you owe as of your assertion time limit.

Making a cost proper earlier than the assertion closes might help scale back your credit utilization. Some individuals make funds each week, or much more usually, to maintain their utilization within the single digits.

If you don’t plan to use for a brand new credit card or mortgage, nevertheless, you in all probability don’t want to fret a few short-term ding to your credit scores as a result of they’re already so excessive. Your scores will in all probability nonetheless be fairly good and will rebound when you repay the steadiness.

Liz Weston, Certified Financial Planner, is a private finance columnist for NerdWallet. Questions could also be despatched to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by utilizing the “Contact” type at asklizweston.com.