An example of the high cost of not using your credit was a great discovery today when I was looking at a credit report company (Credit Karma). They had a graph that shows what grade you get for the % of your credit card usage.
If you have $1,000 available on your credit card and you have used $200 of it, that is equal to 20% usage will get you an “A” grade.
If you use $250 dollars, that would equal 25% usage and would push you into a “B” grade. Think about that – $50 pushed you from an “A” to a “B”.
Now I know some will ask, why is this important?
This has a huge impact on your credit report and that affects most areas in your life. Did you know employers are now judging you based on your score? Insurance companies are using them to decide what they will charge you. We all know it affects home buying, renting, cars and pretty much any high ticket item.
I know, I know – some of you don’t use your credit. You are just a cash type of person. Well check this out. If you have 0% usage on your credit cards, that equates to the grade “C”. You will get the same grade as someone that is using 41-60% of their credit. If that doesn’t make you go “WOW”, then you need to read it again because you didn’t get it – lol
So my recommendation would be to at least use 1-2%, if you are that person that wants to stay at 0%. At least you will have an “A” grade and at the same time, you know you could pay it off instantly if you needed to.
By the way, this is true for everyone. You should always be able to pay off your credit usage at any time. Now I know in life things happen and it is not always possible. But knowing and understanding the graph will at least help you understand where to get your amounts down to, so you could lower your % and get a better grade, so you can get better rates.
Again this information was taken directly from Credit Karma, so I want to give them their recognition.
If you use:
0% = C
1-20% = A
21-40% = B
41-60% = C
61-100% = D
100+ = F (how do you go over 100% – when you are over the limit on your cards)
No Credit = N/A
Use credit wisely, so you are not just giving away money in high interest rates.