Small business owners sometimes have their creditworthiness evaluated. For this reason, it’s important to maintain strong personal and business credit scores. Here are some tips on how you can manage your revolving lines of credit to be able to build a strong FICO score.
The Basics of Revolving Usage Percentage
Revolving usage percentage is a significant factor in assessing your credit score. This has to do with the amount of credit you use in relation to the entire amount to which you have access. For instance, if your credit cards carry $10,000 in total limits, and you have used $5,000 of credit, your revolving usage percentage is 50 percent.
How Revolving Usage Percentage Affects Credit Score
The amount of credit utilization on your personal credit cards is a crucial factor in calculating your credit score and in the assessments of lenders when considering loan applications. The ideal credit utilization ratio for a high credit score is 1 to 5 percent, but anywhere under 50 percent is considered to be a good utilization percentage. If your percentage is between 50 and 75 percent, lenders consider you risky, and if your percentage is over 75 percent, you are in the category of highest risk. For this reason, it’s best if possible not to use personal credit cards for business expenses.
Raise Your Limits
If you can’t reduce the expenses that you take care of through your revolving credit lines, ask if the limits on your credit cards can be raised. As long as you don’t start spending more, by increasing the limits of credit available to you, you lower your credit utilization ratio. This will positively impact your credit score.
Keep Accounts Open
Closing revolving accounts is bad for your credit score. Even if you no longer use some accounts, keep them open to maintain a high credit score. To prevent accounts from closing due to inactivity, make a purchase once or twice a year through them. Additionally, whether you use your cards or not, monitor them periodically so you can detect and deal with any fraudulent activity.
For more advice on maintaining good credit scores, contact Grecco Capital.