Here's Why I Never Have to Worry About My Credit Utilization

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  • Your credit utilization is a heavily weighted factor in your credit score.
  • If you have a large amount of credit, you might not need to check your credit utilization.
  • You can increase your total credit by applying for more credit cards and requesting credit limit increases.

It's a big part of your credit score, but with this strategy, you'll never need to check it.

When your credit score is calculated, one key number is your credit utilization. Your credit utilization is the balances on your credit cards divided by your credit limits. This is part of a factor called amounts owed, which makes up a whopping 30% of your FICO® Score (the most widely used type of credit score by lenders).

Even though credit utilization is very important, I literally never check mine. I'm able to skip this step for one simple reason, and anybody could follow the same approach.

How to put credit utilization on autopilot

I never worry about my credit utilization because I have a large amount of credit. My combined credit limit across all my cards is around $200,000, far more than I'd use in a month or a year.

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For credit utilization, lower is better, but the standard rule is to keep yours below 30% to avoid damaging your credit. If you have $1,000 in credit, that means you'd need to stay below a balance of $300 to follow that rule. But if you have $100,000 in credit, then you'd only need to stay below $30,000.

Once you have enough credit, you probably won't need to check your credit utilization. In my case, I know that I'm not going to spend anywhere near 30% of my total credit.

There's also an important habit I follow -- I pay my credit cards in full every month. Even with high credit limits on your cards, if you don't pay them off, the balances could eventually grow large enough to impact your credit utilization. More importantly, if you carry a balance, you get charged credit card interest. Whenever possible, it's better to pay in full to avoid interest charges.

How to increase your credit limits

The challenge of this method is getting access to more credit. Your income plays a role here, as your income on credit card applications is a factor card issuers use to set your credit limit. However, even people with income below the national average can get plenty of credit.

There are two simple tips you can follow to increase your total credit limit:

  • Apply for more credit cards. Every time you're approved for a card, its credit line adds to your total credit limit.
  • Request a credit limit increase. If you regularly pay your credit card bill on time, you could qualify for a higher credit limit. Most card issuers let you request this online or by phone.

There are a couple of things to know before you do this. Increasing your credit can backfire, big time, if it causes you to start overspending. Only follow these tips if you're confident that more credit won't change your spending habits, and that you'll pay your credit cards in full every month.

Also, it's much easier to get more credit if you have a high credit score. Card issuers will be more likely to approve you for new credit cards and credit limit increases. If you're working on raising your credit score, focus on that first by paying your credit card bill on time and not spending too much.

When you're in the process of building credit, monitoring your credit utilization is a good idea. Once you have a good credit score, you may want to consider increasing your overall credit limits. If you do that and always pay your credit cards in full, you won't need to monitor your credit utilization anymore.

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