Using credit to make purchases is a way of life for most people. From large purchase such as buying a home or car to using credit cards for smaller purchases such as paying for lunch or a tank of gas, the use of credit is an important part of our daily lives.
Credit cards are the most frequently used form of credit. If you own a credit card or are thinking about applying for one, it is important to know what percentage of your credit limit should be used. Going over your limit can damage your credit.
No matter what your credit limit is, don't use more than 40 percent of your available spending limit. When more than 40 percent of your spending limit is used, it will begin to have a negative effect on your credit score.
Your credit score is important because it determines what your interest rate will be when applying for or using credit. You should avoid doing things that have a negative impact on your credit score. Credit card companies periodically check your score, and make adjustments to your credit limit and interest rate. If you use more than 40 percent of your available credit, your score will go down, which could result in increases in your interest rate and your monthly payment.
It is very easy to use all the credit that is available to you. So use caution when paying for items with a credit card. Many people use their credit cards heavily and then make only the minimum payment. This can keep you in debt for a very long time. A good practice is to only charge items that you are able to pay for in full when the bill arrives.