Debt Collection Expert Discusses the Question of Credit Utilization

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Following an article from the Chicago Tribune highlighting variables that affect consumers’ credit utilization, John Monderine, CEO of Rapid Recovery Solution, offers his input.

On May 11, 2013, debt collection expert John Monderine discusses the question of how consumers should think about credit utilization when trying to maintain a good credit score.

According to a recent article from the Chicago Tribune, “most people know that paying bills on time and not having too much total debt compared to income go a long way to establish creditworthiness.” But another important and lesser-known factor, says author Debbie Carlson, is the debt-to-credit ratio, known as credit utilization.

A consumer’s credit utilization is a good indicator of how disciplined he or she is with their credit use, says Carlson. She says in order to find out your credit utilization, add up your credit card limits and divide by how much of the limit is used. For example, “a person with a $1,000 total credit card limit and $900 in total credit card debt has a debt-to-credit ratio of 9-10, which is very high.” The smaller the credit utilization number, the better.

There is no established ideal for low it should be, but consumer advocate for the CFP Board of Standards Eleanor Blayney says that preferably “a person would use only between 10 percent and 30 percent of the credit limit.”

“Why? Credit agencies are looking for people who are disciplined enough to use credit sparingly and are not tempted to run up big balances.”

Howard Dvorkin, founder of Consolidated Credit Counseling Services says that the reason why credit utilization is so important is because paying off a balance each month doesn't affect your debt-to-credit-ratio. “When a credit check is done, the firm pulling the information essentially gets a snapshot of the amount of credit card debt the person has on the day the credit card company relays the information,” he says. Dvorkin also says that “consumers planning to shop for a big-ticket loan for a car or a house should try to limit credit card use at least 30 days ahead of time.” This also includes people who pay their balances off each month.

A high total credit card limit can give someone a bit more flexibility to keep a small debt-to-credit ratio, but Dvorkin and Blayney stress that people “should not rush to open new credit cards to boost their limit.”

John Monderine, CEO of the debt collection agency Rapid Recovery Solution, says that credit agencies prefer consumers with the discipline to use their credit sparingly. “That means keeping your balances under control. I always advise people to be extremely cautious when opening new cards. If you want to have more credit, you might consider asking your card company to raise your limit instead – it will raise fewer red flags.”

Founded in 2006, Rapid Recovery Solution, Inc. is headquartered at the highest point of beautiful Long Island. Rapid Recovery Collection Agency is committed to recovering your funds. We believe that every debtor has the ability to pay if motivated correctly. We DO NOT alienate the debtors; we attempt to align with them and offer a number of ways to resolve not only your debt but also all their debts.


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