Q&A: Why you need to pay attention to your credit utilization

Dear Liz: Our credit scores are in the low 800s. We always pay all credit card balances off before the next billing period. We are presently charging a cruise for us and our daughter and her husband. We’re worried about using too much of our available credit and thus reducing our credit scores. We’re using one credit card and paying half the balance this billing period and the rest on the next billing period. I’ve never been able to calculate the “credit utilization,” but I’m sure we will exceed it for the next two months even though we will pay the amount charged in full. With this large charge, can you suggest anything else we can do?

Answer: Your credit utilization is simply the amount of available credit that you’re using. If your card has a $10,000 limit and you make $5,000 in charges, your credit utilization ratio is 50%. (If you’re not sure what your credit limit is, you can check your account online or call the number on the back of your card and ask.)

In general, the less of your available credit you use the better.

The balance that matters for credit scoring purposes is the balance that’s reported to the credit bureaus — and that’s typically what you owe as of your statement closing date.

Making a payment right before the statement closes can help reduce your credit utilization. Some people make payments every week, or even more often, to keep their utilization in the single digits.

If you don’t plan to apply for a new credit card or loan, however, you probably don’t need to worry about a temporary ding to your credit scores because they’re already so high. Your scores will probably still be quite good and will rebound once you pay off the balance.