Hi, I'm Jean Chatzky and this is your Savvy Money Minute, brought to you in part by Alliant Credit Union.
So you want to raise your credit score so you can get lower credit card interest rates, easier credit, and even better new job prospects? You need to understand credit utilization. I know it sounds complicated but it's simple.
It's a ratio. How much credit you have versus how much you use and it can make up to more than 20% to 30% of your credit score.
Example: Say you have an outstanding balance of $400. Your credit lines? $2,000. Divide your debt by your credit. In this case, it's point two or 20%. That ratio is great. A Credit Utilization Ratio of under 30% helps your score.
One common mistake? Thinking that closing a credit card account will raise your score. Our friend Lori did that but look at her ratio. Fewer cards means a lower credit limit. To raise her score, pay down her balances by $1,000 and keep her credit lines open at $5,000 and she's at 20%.
Here comes a better credit score and better financial health. I'm Jean Chatzky for your Savvy Money Minute.