Most folks know that being "maxed out on credit cards is bad, but I've found that most folks don't know is exactly how that works...
One of the biggest factors in determining your credit score is what's called the "CREDIT UTILIZATION RATIO". (CUR) Effectively, it's a measure of the amount of debt you have on revolving (credit card) accounts, as opposed to the credit limits on your accounts.
In essence, if you lower the ratio of outstanding revolving debt you have, as it relates to your credit limits, the better your score will be. For example...
total revolving credit limits = $10000
balances on those accts = $ 9000
CUR = 90% (very bad)
OR......
total revolving credit limits = $10000
balances on those accts = $ 1000
CUR = 10% (much better!)
So of course, keep the balances low...
Credit utilization ratio is the proportion of your credit limit you have already utilized on your card. Credit utilization should not be greater than 30-35% of your available credit limit, as it will affect your credit score because amounts owed contributes 30% in your credit score. The more money you spend, the greater becomes your liability and it is possible for you to become delinquent. If you have more than one credit card, you can spend upto 30% on each of them rather than spending the entire amount on a single card.
I want to add one more thing here. If you spend too much on your credit cards, the most important thing is that you should keep track of your spending. Even if you spend 30% on each cards with $300 limit on say 10 cards, it comes to $900. Now if you are not in a position to make a one time payment of this $900, and miss any payment on any one of the cards, it will be listed in your report and affect your score. So the best thing is to maintain 2 or 3 credit cards and spend the amount on these cards upto the limit you think you can afford to pay.
In response to Justin...
The CUR is based on the TOTAL lines vs. balances... It is NOT broken down by account, so breaking up the speniding would be nothing more than an inconvenience... The individual credit card companies might look at your balance on THEIR card, and adversely impact your account by raising rate, or lowering credit line, but that's it...
cc
WOW!!!!!!!!!!!! I never knew this!! COOL!! Good information to have.....thanks for the tip. I don't have any Cc's,..I know ALOT of people that do. I'll pass along the 'tip' to them.