Utilization ratio is a hidden credit score killer

Utilization ratio is a hidden credit score killer
Your credit score may be impacted by something you didn't know was important. (Source: Pixabay)

(WWBT) - Credit scores determine everything from the interest rate on a credit card or home mortgage to car insurance premiums, and there are ways to make sure that number stays in your favor.

Sometimes, the reason for a drop in your credit score is obvious - a large credit card bill or late payment. But cancelling an old credit card can cause the same thing.

One of the most important factors in a credit score is the credit utilization ratio. That's the percentage of available credit that you're using at any given time.

For example, if you have two credit cards, each with a $5,000 limit and you're carrying a $2,000 balance, that means your credit utilization ratio is 20 percent.

But close one of those cards and that ratio jumps to 40 percent. That's high enough to hurt your score.

Debt creep also negatively impacts your score.

If your balance has been creeping up, month after month, that will push the ratio higher too.

Your first step should be to pull one of your free credit reports from AnnualCreditReport.com and check it for errors or fraud.

Then check your bills to see if you missed a payment or if your utilization ratio is too high.

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