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Budget and Credit Limits

Last week I talked about 3 things you can keep in mind to help raise your credit score. Today I will focus on one of those, not using too much of your available credit.

First, what is your available credit? Put simply, it is the sum of the total limit amounts of all your "revolving" credit. Basically add up the limits of each of your credit cards and that can be considered your "available" credit. This ties closely into not having a high debt-to-income ratio but I will talk about that later this week.

For example, if your total available credit over 3 cards is $24,000 and you currently owe $22,000 on those cards, you are using too much of your available credit. The bureaus I discussed last week see that and don't see how you can responsibly bring on even more debt and pay it all off.

If you can keep your balances within a certain level, say well under 30% of your available credit but paid it off consistently, that speaks more well of you to the bureaus. How can you do that?

The simple answer is, use a budget.

Using a budget to plan out your expenses for the month helps you see where all the money is going. It also can show you what spending categories you can use consistently on your credit card(s). You can decide what expenses go on the card, and if you use the budget as your limit, the card will not get out of control. Since you have only spent what you planned, and that should not exceed your income. You can feel confident paying it off each and every month because you see that you have the money. Take the following example of some expenses:

$500 for food

$200 for utilities

$150 cable/subscriptions

$75 internet

$350 cell phone(s)

This is not an exhaustive list, however, would you feel more capable of paying off $1,275 consistently each month? It is certainly a smaller percentage of your overall credit limit using the same values from earlier. Still, it won't be easy or quick to make big swings in your credit. Though this can be a single step in a different direction. Is it time to try something different?

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