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Utilization & Personal Credit

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Created on 12/18/2016 by Thomas (TJ) Underwood of Realty 1 Strategic Advisors

Learn why “how you use” your credit is vitally important when managing your credit and credit score…


Did you know that “how you use your credit” plays a critical role in maintaining and improving your credit and credit score?   

Your “Utilization Rate” gives your current as well as future creditors a real idea of how you manage your credit and is one of five factors used in the credit scoring industry to help determine if you are a good credit risk.


Even though utilization is only one of the five factors, Utilization carries the 2nd most as far as weighting (at 30% of your total) of your credit score.  

Utilization is an area of your credit that you must manage optimally if you desire to manage your credit at a higher level and live more abundantly while here on earth.


It is important that you realize that unexpected or unforeseen life events will hit us all at some point and that has caused many to increase their utilization rate because they had no other choice. 

You must put yourself in a better place to avoid this scenario playing out in your life by properly establishing an emergency fund  at the earliest stage possible in your life, know how to manage your income and expenses in a sound manner and have a real understanding of how to effectively manage your finances in a comprehensive manner.


But what exactly is this factor called Utilization and what does it consist of? 

Utilization is how much of your "available credit" you use based on a percentage of that usage.

If you have $10,000 of available credit with three creditors (Creditor 1 $3,000, Creditor 2 $3,000 and Creditor 3 $4,000 ) and you have charged or used $3,000 of that available credit your Overall Utilization Rate would be 30%.


$3,000/$10,000 = 30%


If at Creditor 1 you charged or used $1,000 your Utilization Rate with Creditor 1 would be 33.33%


If at Creditor 2 you charged or used $0 your Utilization Rate with Creditor 2 would be 0.00%


If at Creditor 3 you charged or used $2,000 your Utilization Rate with Creditor 3 would be 50.00%



When you combine the usage of the 3 available credit cards it totals $3,000 and the available credit is $10,000 making your Overall Utilization Rate simple to calculate. 


Rarely in the real world will your utilization neatly fit in as in the above example, however, the concept remains constant at all times—your usage divided by your available credit either with your individual card or all of your available revolving credit will provide you your utilization rate or Overall Utilization rate—which credit card and credit scoring companies (FICO) use to weigh your “credit risk.”


Therefore the key to maximizing your credit score as well as effectively managing your credit means that you must keep your "utilization rate" low. 

The lower the better, generally speaking!


A real goal of yours should be to have a properly established emergency fund and maintain a utilization rate of zero to 10% maximum. 

Even at the upper 10% range of usage of your credit you should be in position to pay off that outstanding balance monthly, or at least have the goal of doing so throughout your lifetime or during the period that you plan on using—or have to use credit.  

When your usage goes above 30% you put yourself in position to give the credit industry even more reason to frownand your credit score (downward movement) will reflect on that usage!

Many use reward cards as an effective tool in the management of their finances by understanding how to use credit wisely and having the discretionary income to pay off their credit charges in full on a monthly basis.


In the best of situations you want to be in position to pay your outstanding balance off on a monthly basis—and actually do so on a monthly basis. 

If you are one who already have your credit established at the level that you desire and you like carrying a zero balance—it is important that you use each of your cards every 3 to 4 months to keep them in your “active mix” so that you can continuously maintain or improve your credit and credit score.


As part of this discussion on utilization you must also have an understanding and know how to practically apply all of the factors that affect your credit and credit score to your best advantage!


Remember the 5 credit factors include:


Negative Information which we discussed in a previous article (you must do all that you can to keep it off of your credit report—you tell me all about "Payment History and the importance of keeping Negative Info out of your credit file" after reading this article—LOL—no seriously)  also known as your Payment History— comprises 35% or is

1st in importance of the credit factors


Utilization or how you Use Your Credit (do your best to keep your account balances low or at zero and after reading this page you are in position to fully understand the importance of keeping your utilization rate lowyou tell me all about utilizationLOL—no seriously)30% or

2nd in importance of the credit factors


Time Factor or how long you Keep Your Accounts Open (be sure to keep older accounts with a positive payment history open)—15% or

3rd in importance of the credit factors


Type of Credit or your Credit Mix—which we discussed in a previous article (you tell me all about "the types of credit"—LOL—no seriously)—10% or

4th in importance of the credit factors


Inquiries or how many creditors do a Hard Pull of your credit file (keep your hard inquiries to a minimum if you are trying to improve your credit in a timely manner)—also 10% or

The same level of importance as the type of credit mentioned above


100%get the picture…




Without a "mental plan of action" it is easy to let your Utilization Rate or Overall Utilization Rate get to a level that makes it difficult for payoff or difficult to manage. 

Likewise, opening a number of accounts (or even just one) to improve your utilization rate in a short period of time will shorten the time length of your credit file and often pull your score down before you see point increases due to your utilization rate decreasing.

Using the tips provided in this discussion can save you years of heartache and put you in a stronger position to reach your future goals. 

You must keep your revolving, open and installment debt at a manageable level if you desire to live your life in a more enjoyable manner.


You cannot do like those who lack the income and/or have too many expenses along with "no mental plan of action" as it relates to their credit and finances do. 

Their money management personality in many cases put them on track to run in the opposite way of where they needed to be.


Your "Utilization Rate" is 2nd in importance (30%) right behind having a clean payment history (35%) when it comes to weighting your credit score. 

Use that knowledge wisely and do your best to reduce or eliminate your revolving debt at this time and throughout your life!


By properly utilizing your available credit and having a consistent payoff plan in place you can put yourself in position to maximize your credit and credit score!


Isn’t it time that you start—or continue to soar?


All the best…


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About This Article:


The above article was written by Thomas (TJ) UnderwoodThomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia. 

He is the writer behind The Real Estate & Finance 360 Degrees Series of Books that include The Wealth Increaser, Home Buyer 411 The Smart Guide to Buying Your Home, Home Seller 411 The Smart Guide to Selling Your Home, and  Managing & Improving Your Credit & Finances for this MILLENNIUM.

In addition he is also the writer who created The 3 Step Structured Approach to Managing Your Finances, and CREDIT & FINANCE IMPROVEMENT MADE EASY—NEW GUIDE that you can download right now "(at MIMIMAL cost $3.95)" to learn more about his writing style and how you can achieve "more" success in the current economy.

He is the creator of where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner. 

He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. He was the first financial planner to coin the phrase "financially alert mind"  and he consistently writes in a style that is designed to provide consumers the ability to take control of their lives and achieve great results.

You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page.  You can also get highly relevant tips on "living your life more abundantly" and link to and possibly earn revenue by logging on to

He is also an IRS registered tax planning professional with over 30 years of tax experience and can be reached at:



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