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What percentage of your credit card limit should you use?

One of the key elements of any credit card is the credit limit. Your credit limit is based on your credit history. A major contributing factor to having overall positive credit is to manage your credit limit well. Some people think that using up to 100% of a credit limit is fine as long as you don’t go over, but that is not the case. There are some ways you can handle your credit limit to reflect positively on your credit history.

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Credit Card Limit Information

As mentioned before, credit card limits are based on credit history. The rule of thumb is any credit limit below $2,500 says that your credit history is average. If the only credit limit you can get is below $500, this says that you have poor credit. Once you establish your credit by making payments on time and staying under your limit, you should be eligible for a credit limit increase.

Some credit card companies will automatically raise your limit after you prove yourself, but others will not.

You should routinely ask your credit card companies for an increase in your credit limit until you reach a limit above $2,500.

This does not mean that you have to use the whole amount up to that limit. You will still need to be responsible.

Credit limits also take into account your household income. Anytime you get a raise, add more income, or even receive a bonus you should request an increase. Eventually, when all your credit cards reach higher limits your credit score will increase. It is a negative thing to open several low limit credit cards. This will affect your credit score adversely.

Staying Well Below Your Credit Limit

percentage of credit limit should be usedIt is easy to treat your credit limit as a safety net. As long as you don’t go over, it’s okay right? Wrong. You should only use about 40% of your credit limit. Once you get over this percentage, your credit score begins to fall. A falling credit score can then in turn increase your interest rate. Once you reach your limit, your score can drop 100 points and your interest rates increase to as much as 30%

If you are close to your limit, this sudden increase in your interest rates can push you over the limit. Then your credit score will spiral even more and you will face over the limit fees. It is wise to treat your credit limit with caution and not get too close to it. Think of your credit limit merely as a suggestion.

For this reason and other reasons, you should not get too close to your limit. If you have an emergency, you want there to be room on your card. If you have a fraudulent or accidental charge that you need to dispute, you want room on your card without going over. But the most important reason is to keep your credit score high and intact.

The credit crunch that the nation is under is likely to last well into the future.

Most credit card companies have suffered loses over the last few years due to issuing too many credit cards that cannot be paid back. To counteract this, credit card companies are tightening their belts and not lending to as many people or as easily. They are holding to stricter guidelines and requiring higher credit scores. Keeping your credit score high is the only way to have access to the things you need.

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Using Credit Wisely

using the proper amount of your credit card limitThere is much more to using your credit wisely than just keeping well under your credit score. First of all, you should get your once yearly free credit report every year (click here for free credit report offers that come with a paid credit monitoring service so that you can keep track of your credit score). Even if you have good credit, it will show you anything that has changed or any mistakes that may be on it. If you find a mistake, you will want to fix it right away by contacting the company the mistake is with. Typically, it takes six months for a correction to show up on your credit report.

Keeping an eye on your credit score is a good idea, but so is paying on time. Making at least your minimum monthly payment on or before the due date is responsible credit handling. Just one late payment can result in a decline in your credit score. Also, be sure only purchase items you have the money for. Credit cards should be used just to establish a history, not to purchase things you can’t afford in the first place.

Deciding what credit card is for you and getting the credit limit you want isn’t difficult. However, it can be overwhelming since there are so many choices. Using the credit card “Chaser” comparison tool on this page will show you different cards, what they have to offer, what interest rate you can get, and more. This information can help you choose the card you want for your lifestyle.

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Disclaimer: This content is not provided or commissioned by American Express, Visa, MasterCard, Discover, or any other credit card company or issuer. The opinions expressed here are the author's alone, not those of any credit card company or issuer, and have not been reviewed, approved or otherwise endorsed by any credit card company or issuer. Credit Card Chaser may be compensated through various affiliate programs with advertisers. As always, Credit Card Chaser is an independent website commmitted to helping people research credit card offers and find the best credit card!

Less than $2,500 More than $2,500
Always Never Sometimes