For those of you that are new here, this blog chronicles my family’s journey out of six figures of debt. This epic amount is a combination of student loans, credit cards, vehicle loans, and a personal loan. If you’re interested in a more in depth explanation, check out this post.
One of our primary financial goals for 2017 is to knock out our credit card debt to reach a utilization of less than 30% in hopes of giving our credit scores a boost. We are currently renting from my in-laws and will need to be out of this home by February 2018. We have zero desire to rent again, so we have less than a year to get ourselves mortgage-ready and in a lender-favorable position.
I assume that some of you will read this and think that we are crazy for wanting a mortgage while being in six figure debt. Personal finance is just that, personal. Unique. Different. Our decisions may be the last decision someone else would choose, but that’s the beauty of living in a diverse world.
Expressed as a percentage, this is the relationship between balances on your credit cards and the credit limits.
Example: You owe $450 on your Kohls credit card. Your credit limit is $1000. 450/1000=0.45=45% You are utilizing 45% of your available credit.
Your credit card utilization is a significant element used in calculating your credit score. Banks interpret high utilization rates as an inability to efficiently manage your money.
Banks and lenders need to see evidence that you can manage your money in a wise manner. I am not a fan that one must go into debt in order to prove your acumen in finances. You would think that by prudently managing your money and paying cash for everything would be proof enough. But, I digress.
From my research and conversations with several lenders, a utilization rate of less than 30% is the industry standard that places you in the “good” category. A utilization of 1-10% is even better.
I have received conflicting information on 0% credit card balances. One lender says that in order to increase your credit score you should charge a manageable amount and pay it off each month in order to avoid interest. Another lender informs you that you should carry a small balance from month to month. What to do, what to do? (If any of you have any insight, I’d love to hear it!)
If this graph is any indication, carrying a 1-10% utilization rate on your credit cards results in the highest average credit score.
Source: Credit Karma
I created this extremely simple Excel spreadsheet in order to get a snapshot of our family’s credit card utilization and I wanted to share it with you all.
Here’s a snapshot:
These are not our numbers. How I wish they were.
I am quite sure that there are more fancy and sophisticated spreadsheets out there to capture this information. But if you’re like me, you like simple and straight forward.
Here is a link to download the Excel file:
My original ambition for starting this blog was to share my family’s real…