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It may be easy to think that paying late or missing a credit card payment here or there won’t matter; but your payment history is the most significant contributing factor to your credit score. Every late payment can set you back, especially if you’re building your credit from scratch. That’s why paying your credit card bill and other loans on time is imperative. It signals to creditors that you’re responsible with credit and might be able to handle more.
Spending more than you can afford hurts your credit if it makes you miss payments or carry high balances. Budgeting can help you avoid unnecessary debt. Fortunately, creating a budget is not as complicated as you might expect. Consider the 50-30-20 Rule, which provides the framework for prioritizing necessities over nonessentials.
You can follow these steps to determine your credit utilization ratio:
- Add up the outstanding balances on all your revolving credit accounts (your total revolving debt).
- Add up the credit limits on all your revolving credit accounts (your total revolving credit).
- Divide your total debt by your total credit.
- Multiply the remainder by 100 to arrive at your credit utilization ratio percentage.
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