Do you need to pay off your debt or keep carrying a balance to help you with your credit score? In a way carrying a balance will be beneficial for your credit score, but you only get this benefit if the amount is the bare minimum. Carrying a huge amount in your credit will hurt your credit score because you have a high credit utilization ratio.
Your credit utilization ratio shows the lender how much your actual credit is compared to the total credit limit in your credit card. Ideally, your debt should not be more than 30% of your credit limit. The key is to remember to keep your credit utilization ratio as low as possible. It is ideal if you can keep it under the single digit score.
One of the best ways to start to lower your credit utilization is to pay off debt no matter how small the repayment is. You do not only get to experience a better credit score but you also save money from the interest rates that you pay if you only keep on paying the minimum amount from your credit cards. The wise thing to do is to pay as fast and as much as you can.
Another tip is to transfer the balance of all your cards into one. When you consolidate your debts, sometimes credit card companies give you a zero interest rate. You do not only automatically increase your credit limit but you also lower your credit utilization ration as long as you do not make new charges in your credit cards until you reach the 30% or less debt utilization ratio.
The basic rule of thumb is that to pay off debt, lower your credit utilization ratio, pay more than the minimum amount from your credit card, pay your debts on time and incur no new debts. By doing these things you will see your credit score go up in six months or so and you will benefit by saving money from interest. And best of all, you will be debt free!
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