How to Maximize Rewards on Everyday Spending

Woman using credit card on everyday spending

While many rewards enthusiasts focus on signing up for new credit cards to earn signup bonuses, not everyone has the time or desire to play the signup game. There is effort involved in tracking multiple cards, annual fees, and rewards programs, after all, and some people don’t want to spend their time or mental energy this way.

If you’re someone who falls into this category, you may be better off maximizing one or two cards instead of chasing rewards. Fortunately, you can earn plenty of rewards over time if you’re savvy about your card’s benefits and bonus categories.

The key to getting the most out of your rewards cards is understanding how they work and looking for opportunities to earn more points on your everyday spending. Here are some tips that can help.

Brainstorm every bill you could pay with a credit card

Because rewards cards offer points based on each dollar you spend, maximizing the amount you can spend on credit is the best way to boost your rewards haul. The smartest strategy to use here is figuring out how many of your monthly bills you can pay with a credit card.

While you may not be notified or aware, it’s possible that bills you’ve been paying with a check or debit card for years can be paid with a credit card without any fees. While your bills may vary, some expenses you should try to pay with a credit card include:

  • Rent
  • Utility bills like electric or gas
  • Health insurance
  • Cable television and internet
  • Cell phone
  • Taxes
  • Daycare
  • Auto and home insurance
  • Subscription services
  • College tuition or student loans
  • Medical bills
  • Lawn care

Keep in mind that these are just some of the bills you could be paying with credit. Depending on your situation, you could have additional, uncommon expenses to cover that could be paid with credit with ease.

Also, remember that these additional bills should be paid with credit on top of your everyday expenses like groceries, dining out, gas or bus fare, and miscellaneous spending. Every time you buy something in person or online, you should strive to pay with your rewards card if you can.

Leverage your rewards card bonus categories

It’s also important to leverage your favorite card bonus categories, whatever they may be. This is especially important if you have a few cards with different bonus categories since you’ll want to make sure you’re using the right card for bills that let you earn bonus points.

Let’s say you have a travel credit card that earns 3x points on dining and travel and another card that earns 6x points at the grocery store. In that case, you would be smart to use the travel card for dining and travel purchases and your other card when you stock up on food. While the amount of rewards you earn with individual purchases may seem nominal, using the right card for the right purchase can help you earn a lot more rewards over time.

Set up auto-pay bills to be paid with credit

Most of us have bills set up to be paid automatically, whether it’s our Netflix and Hulu subscriptions, gym membership, or utility bills. Make sure each bill you have set up to be paid automatically is set up to be paid with your rewards card and not a debit card. This way, you can earn rewards points on those expenses every month.

Use shopping portals and dining clubs

Many flexible rewards programs, frequent flyer programs, and hotel loyalty programs have shopping portals you can access to earn extra points. Major airlines like American, Delta, and United also have shopping portals that work similarly. (See also: How to Maximize Rewards Through Credit Card Shopping Portals)

Some programs like Southwest and Delta also offer dining clubs. These programs let you earn additional points or miles just for dining at participating restaurants in your area. It’s easy and it’s free to join, so you may as well earn extra miles on your spending if you’re going to dine out anyway. (See also: Everything You Need to Know About Airline Dining Rewards Programs)

How much the average family can earn

If you are skeptical the average family can rack up meaningful rewards without signing up for new cards over and over again, look at how this might work in real life. For example, imagine a family of four with two rewards card-toting adults. Across the two of them, they have:

  • A cash back card that earns 2% back
     
  • A travel credit card that earns 3% on dining and travel
     
  • A rewards card that earns 6% cash back at the grocery store on up to $6,000 in spending each year

To figure out how much this family might earn, we used Bureau of Labor Statistics spending averages from 2017. Here’s a rundown of that data for the year plus how much a family could earn in rewards over 12 months based on average expenses:

  • Food at home ($4,363): $261.78 in rewards at 6%
     
  • Food away from home ($3,365): $100.95 at 3%
     
  • Utilities, fuels, and public services ($3,836): $76.72 at 2%
     
  • Household operations ($1,412): $28.24 at 2%
     
  • Household supplies ($755): $45.30 at 6%
     
  • Household furnishings and equipment ($1,987): $39.74 at 2%
     
  • Apparel and services ($1,833): $36.66 at 2%
     
  • Gasoline and motor oil ($1,968): $39.36 at 2%
     
  • Other vehicle expenses ($2,842): $56.84 at 2%
     
  • Healthcare ($4,928): $98.56 at 2%
     
  • Entertainment ($3,203): $64.06 at 2%
     
  • Personal care products ($762): $45.72 at 6%
     
  • Education ($1,491): $29.82 at 2%

Total rewards: $923.75

While $900+ is a lot to earn in rewards within a year, you have the potential to earn a lot more. After all, these are just some of the expenses the average family faces and not all of them. If you could pay some additional big bills with credit each month like daycare or your rent, you could significantly add to your bottom line.

What to watch out for

While maximizing rewards cards is a smart idea if you’re using them already anyway, there are always pitfalls to be aware of when you’re using a credit card. Here’s what to watch out for during your quest for more cash back and travel rewards.

Fees for using credit

While there are many bills you can pay with credit without a fee, some vendors, merchants, and service providers charge a fee to use a credit card as payment. Fees are especially prevalent on bills such as utilities, cable or internet, rent, and insurance. Make sure to verify you aren’t being charged a fee to use credit before you proceed.

Annual fees

Don’t forget that some rewards cards charge annual fees. These fees may be worth it depending on your spending and rewards haul, but you should always factor them into the equation to make sure each fee is worth paying. If you’re against paying annual fees, look for rewards cards that don’t charge one.

Budgeting mishaps

Using a credit card for all your expenses may simplify your financial life, but it could also cause your budget to fall out of whack. Make sure you’re only spending on purchases you planned to make anyway, and that you’re tracking your spending and paying off your credit cards regularly.

Debt

Never use credit cards for purchases you can’t afford to repay if you’re pursuing rewards. The interest you’ll pay will always be much more than the rewards you earn. If you’re worried using credit will cause you to rack up debt you can’t afford to repay, you’re better off sticking to cash or debit instead.

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Want to maximise your credit card rewards? The key to getting the most out of your rewards cards is understanding how they work and looking for opportunities to earn more points on your everyday spending. We’ve got the ultimate tips and tricks to help you save money and earn more rewards! | #creditcards #rewardsprogram #creditcardrewards


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How I Swipe: TPG reporter Chris Dong

Welcome to How I Swipe, a credit card routine series with a focus on strategic credit card spending while at home and on the road. Below is a short list of questions we asked TPG reporter Chris Dong to answer about how he spends on his credit cards, covering everything from the first card he …

Source: thepointsguy.com

How to Consolidate Credit Card Debt

Credit card debt is on the rise. Millions of Americans are in over their heads. They’re losing sleep, losing control, and worried about what the future will hold. But there are solutions, and consolidation is one of the best.

Consolidation works by “consolidating” multiple debts into one. It’s the perfect solution for mounting debt, one that doesn’t destroy your credit score, liquidate your assets, or make it difficult to acquire mortgages and personal loans in the future.

With that said, let’s look at some of the best ways to consolidate credit card debt.

Option 1: Do It Yourself

The idea of debt consolidation essentially boils down to acquiring a large, low-interest loan and using that to repay multiple high-interest debts. If your credit score is high enough, you can get that loan yourself, clear your credit card debts, and then focus on repaying the loan.

Do It Yourself Consolidation Explained

The average credit card APR is close to 20%. If you have a balance of $10,000 and a monthly payment of $300, this APR will cost you over $4,700 in total interest and your debt will be repaid in just over 4 years. If you were to acquire a $10,000 personal loan at a respectable rate of 8% over the same 4 years, you’ll pay just under $1,800 in interest.

That’s a saving of nearly $3,000 over 4 years, and it’s based on an 8% rate (lower rates are available) and on the assumption that you don’t accumulate any credit card penalty fees or penalty APRs, which are very common on rolling balances.

Pros

  • You Will Save Money: As noted above, this process could save you a lot of money over the long-term and will also free up some additional cash in the short-term.
  • Complete Control: You don’t have to worry about company fees and service charges; you don’t need to concern yourself with hidden terms. With this credit card consolidation option, you are in complete control.
  • Easy on Your Credit Score: While your credit score will take an initial hit because of the loan inquiry and the new account, as soon as you use that loan to clear your credit card debts you should see an improvement. Just remember to keep those cleared cards active, otherwise, your credit utilization ratio will drop.

Cons

  • Good Credit Needed: For this option to be viable, you will need an excellent score. Anything less and you may struggle to be accepted for a low-interest loan. Let’s be honest, if you’re struggling with growing credit card debt, the odds of you having a flawless credit score are pretty slim.
  • On Your Own: While there are benefits to doing everything by yourself, it can also be a little time consuming, and if you don’t know what you’re doing, it can be intimidating.

Option 2: Work with a Debt Management Company

Credit counseling agencies can help you manage your debt by working with your creditors. A new payment structure will be created, and your money will go straight to the agency, after which it will be released to your creditors.

Debt Management Consolidation Explained

To begin the process, search for reputable debt management services in your area. They will assess your situation and determine if you are a good fit for the program. Some charge fees, some don’t, but all will serve as an intermediary between you and your creditors.

Every month you will make a single payment and the money will then go to your creditors. The agency will negotiate reduced payments by bringing the interest rates down and removing fees, therefore making these debts cheaper and more manageable.

Pros 

  • Professional Help: Get quality support from an experienced debt management company, one that will assume control and take the stress away.
  • Cheap: This is one of the cheapest and most cost-effective ways to clear your credit card debt, greatly reducing your total interest repayments.

Cons

  • Fees: Some debt management companies charge fees for their services, although these tend to be nominal and you’ll still save more money in the long-term.
  • Canceled Contract: If you fail to make one of the agreed-upon repayments, your creditors may cancel the improved contract and revert back to the previous terms, erasing all the agency’s hard work.

Option 3: Balance Transfer

A balance transfer is a promotion offered on new credit cards. It invites you to move your balance from your current card to a new one, and in exchange, it offers a period of 0% interest. 

You will need to pay a balance transfer fee, and this is typically charged at between 3 and 5% of the total transfer amount, but it’s often one of the cheapest and easiest ways to consolidate credit card debt.

Balance Transfer Consolidation Explained

As an example of how balance transfers work, let’s imagine that you have three credit cards, each with a maxed-out balance of $10,000 and an APR of 20%. If you’re repaying $300 a month, that’s $900 a month and in 4 years and 2 months, you’ll pay around $14,000 in interest to clear the full $30,000.

Alternatively, you can move all three balances onto a single balance transfer card with a $30,000 limit. Immediately, that balance could grow to $31,500. If you continue paying $900 a month and the balance transfer period lasts for 18 months, the balance will be just $15,300 when interest begins to accrue again. And if you use that 18-month period to initiate a debt repayment strategy, you could clear it in full and avoid paying any interest.

Pros 

  • Multiple Balances Can be Consolidated: You can consolidate multiple credit card balances, providing you’re not moving them to the same creditor.
  • No Interest Repayment: If you plan it properly, you can repay your balance in full before accruing any interest.
  • Available to Everyone: Credit cards are generally easier to acquire than low-interest personal loans and you won’t need an excellent credit score to get a good one.

Cons  

  • Higher Interest: The interest rate and fees may be higher once the 0% balance transfer period ends. If you use the intro period to avoid repayments and not to clear your debt, you could find yourself in serious trouble when interest begins to accumulate again.
  • Large Limits May be Difficult: The bigger your current credit card balances are, the harder it will be to get a balance transfer card with a large enough limit.
  • Fees: Although it’s a great option for consolidating credit card debt, it’s not completely free, as you’ll pay an initial balance transfer fee.

Option 4: Debt Consolidation Loans

Some companies offer specific loans tailored toward debt consolidation. These options work a lot like personal loans, as they are large loans designed with consolidation in mind. However, there are a few key differences, including the fact you don’t need an excellent credit score.

Debt Consolidation Loans Explained

The ultimate goal of debt consolidation loans is not to save you money in the long-term or to reduce the debt period. In fact, it does the opposite. The goal is to reduce your monthly payment and give you a smaller rate of interest, but it does this while increasing the loan period, which means you ultimately pay more money over the term.

Pros

 

  • More Money Every Month: Your monthly payments will be reduced, freeing up some extra cash to use every month.
  • Cleared Debts: Your credit card debts will be cleared in one fell swoop, potentially giving you some financial breathing space.

 

Cons

  • Longer Period: The total length of your debt will be extended, which means you’ll be stuck with the debt for a prolonged period.
  • Cost: While you’ll save some money every month, you’ll do so at the cost of an increased overall balance. Depending on your credit score, you could find yourself paying thousands more in total repayments.

Other Credit Card Debt Consolidation Solutions

If you have a supportive and financially-free family, you can ask them for the money to clear your debts and then promise to repay them in time. 

Of course, this option isn’t without its problems. Firstly, there’s the old adage that you should never lend money to friends or family. It may seem pretty heartless, but it’s a saying steeped in experience. It causes problems, as that debt is right at the bottom of the borrower’s list of priorities and if they’re skipping payments and begging for relief, while at the same time buying new clothes and going out every night, it can anger the borrower.

To avoid these issues, agree to pay them in monthly installments, offer a little interest, and get everything in writing. Make that debt your priority, because by skipping your payments you’ll be hurting your finances and your relationships.

Don’t guilt-trip a friend or family member into lending you money. Don’t ask them unless you have a very close relationship with them, have known them a long time, and know they can easily afford to lend you money. The last thing you want is for them to leave themselves short or to acquire debt just to help you out.

Alternatively, if you own a significant amount of home equity, you can opt for a home equity loan. This will give you a sizeable loan charged at a small rate of interest. It will take longer to repay your mortgage, but by reducing your debt demands you’ll save more money in the long-term.

How to Consolidate Credit Card Debt is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

[Targeted] American Express Platinum 25,000 Point Upgrade Offer

Update 1/8/21: Deal is back again.

The Offer

  • Get 25,000 Membership Rewards points after you spend $2,000 in purchases on the American Express Platinum Card in the first 3 months from the date your account is upgraded

Card Details

  • Annual fee of $550 is not waived the first year
    • Authorized Platinum cards are $175 for three user (then $175 per Platinum)
    • Authorized Gold cards are free
    • Full details here
  • Card earns at the following rates:
    • 5x points per $1 spent on purchases made with airlines or with American Express Travel
    • 5x points per $1 spent on hotel bookings made directly from the American Express travel website
    • 1x points on all other purchases
  • $200 airline incidental credit per calendar year
  • $200 Uber credit ($15 per month and additional $20 in December)
  • Lounge access:
    • Centurion lounge access
    • International American Express lounge access
    • Delta SkyClub lounge access
    • Priority pass select membership
    • Airspace lounge access
  • SPG gold status (this will also give you Marriott Gold status)
  • Hilton gold status
  • Fee Credit for Global Entry or TSA Pre✓
  • No foreign transaction fees
  • SoulCycle benefits
  • View these other hidden benefits

Our Verdict

Looks to be showing up for people with the American Express gold card. Not as good as the other upgrade offers we’ve seen in the past for 60,000 points but still something I guess.  If you haven’t had the card before my recommendation would be to wait for a 100,000 point offer to come along that you’re eligible for. If you have any questions about upgrade offers, please read this post before asking any questions. General American Express questions are likely answered here.

Hat tip to reader Amar

Source: doctorofcredit.com

Understanding the Perk of a Credit Card Extended Warranty

Many manufacturers warranty their products against defects or certain other issues for a period of time. This is known as the manufacturer’s limited warranty, and depending on the product, it might provide coverage for a period as short as 30 days or as long as three or more years. In many cases, by swiping the right piece of plastic at checkout, you can get an automatic credit card extended warranty.

What Is Extended Warranty Coverage?

An extended warranty is any coverage that goes beyond what the manufacturer provides automatically when you buy a product. Extended warranties are often available for purchase from third parties.

For example, you might purchase an appliance at a home-improvement store like Home Depot or a piece of electronics at a big-box store such as Best Buy. When you pay, you might be asked if you want to purchase extra warranty coverage of several years beyond the manufacturer warranty. In some cases, these warranties step in to provide additional coverage, such as replacing the product if it is damaged or falls victim to typical wear and tear.

What is a Credit Card Extended Warranty?

Some credit card accounts come with a special perk. If you purchase a qualifying product with your card, the card network backs your purchase with an extended warranty coverage. The extended warranty coverage that comes with some of the best credit cards usually extends the manufacturer’s warranty for up to a year longer.

The length of an extended warranty offered can vary by card, and the credit card network won’t extend a warranty past a certain time. Typically, if the manufacturer offers more than a five-year limited warranty, no card network adds time to that. Some only add time if the manufacturer’s warranty is three years or less. Others only add to a manufacturer’s warranty that ends within 12 months.

How Can You Tell if Your Credit Card Includes Extended Warranty Protection?

Many major cards, including some on Visa, American Express and MasterCard networks, offer warranty protection. The best way to find out if your credit card company includes this perk is to read your benefits guide, which is included in the paperwork that came with your card. You can also usually find this information online if you have an online account for the card or you can call the customer service number for your credit card issuer and ask.

Does My Visa Card Have an Extend Warranty?

If your card is a Visa Signature card, then this extra perk is included. Simply look for the words Visa Signature on the front of your card. If you don’t see those words, consult your benefits paperwork or call customer service to get the details about card benefits.

Does Capital One Offer Extended Warranty?

Yes, some Capital One cards come with extended warranty protection. This is because Capital One cards are typically issued on either the Visa or MasterCard network, and it’s the network that provides the warranty coverage.

Does the Costco Visa Include Extended Warranty Perks?

Yes, someCostco-branded Visa credit cards include an extended warranty perk. This is also true for several other branded cards for various stores, hotel chains or airlines.

How Does the Visa (or Other) Extended Warranty Work?

Credit card extended warranty programs have some unique guidelines but do tend to follow the same overall concept. You pay for an eligible item with your credit card. If a covered issue arises after the manufacturer’s warranty coverage is up but before the extended time period covered by the card network, then you can file a claim to be reimbursed for the loss. To file a claim, you’ll need to call the benefits administrator for your credit card issuer.

  • American Express: 1-800-225-3750
  • Visa: 1-800-882-8057
  • MasterCard: 1-800-622-7747

When you make a purchase with your credit card, keep the receipt in case you need to file a claim. Also keep the manufacturer’s warranty, receipt, serial number and product description information on hand. You’ll need all of this information when you make the phone call to file a claim.

Make it a habit to start a paper file whenever you spend big on something. That way, you’ll be ready in case you need to use this benefit. But do note that not all purchases are covered by these rewards. Examples of what’s not covered include boats, motorized vehicles, computer software and used or pre-owned items.

Extra Protection by Paying with Credit Cards

The credit card extended warranty isn’t the only perk you might get when you pay with your credit card. Some cards offer buyer’s remorse protection, ensuring you can always return eligible items within certain windows, or travel and road protections for peace of mind when you find yourself 100 miles or more away from home.

Understanding how credit cards work and what benefits you get from yours lets you get added value when making purchases. Start off right by choosing the best credit card for your needs and using it wisely as one resource in your personal money management toolbox.

The post Understanding the Perk of a Credit Card Extended Warranty appeared first on Credit.com.

Source: credit.com

Should You Sign the Back of Your Credit Card?

Should You Sign the Back of Your Credit Card?

Signing the back of your credit card is an important security step for protecting your card’s information if it should fall into the wrong hands. Merchants are supposed to check that the signature on the card matches the signature on the sales receipt as a security precaution. If a card has no signature on the back, they aren’t required to process the ensuing payment.

Should You Sign the Back of Your Credit Card?

Signing the back of your credit card is always better than not, without exception. It’s another step provided by your credit card company to try and keep your personal information as safe as possible. When used in conjunction with the card verification value (CVV) on your card, it creates a line of defense should a fraudster try to swipe your plastic.

While the signature itself doesn’t protect you, the ability for a salesman to match it to your existing official signatures is where its value lies. This is done most commonly with your driver’s license, or if you’re abroad, your passport is a fine stand-in. In other words, taking a few seconds to sign that little black or white strip could be the difference between your identity being stolen and not.

Here’s a look at how the major credit payment networks handle unsigned cards:

Mastercard

Mastercard urges merchants in its payment network not to accept charges from customers with unsigned credit cards. On the back of every Mastercard, it even says “not valid unless signed.”

The company tries to instill in merchants that they should not process customer transactions unless the customer’s signature appears in the signature space on the back of the card.

If the card has no signature, merchants are to request the customer sign the card. A merchant also will need to see a confirming form of identification.

Visa

Should You Sign the Back of Your Credit Card?

At Visa, merchants must verify that the signature on the back of any card matches the customer’s signature on the transaction receipt and any identification. They want to know you are who you say you are and recreating the same signature on demand when you sign for a credit card transaction is one way to do it.

Visa considers an unsigned credit card to be invalid. The words “Not Valid Without Signature” appear above, below or beside the signature panel on all Visa cards. Turn over the card and you’ll see it. And like Mastercard, Visa urges merchants not to accept unsigned credit cards.

When a customer presents an unsigned Visa card to a merchant for payment, Visa requires a merchant to check the customer’s identification by requesting a government-issued form of ID.

Where permissible by state law, the Visa merchant may also write the customer’s ID serial number and expiration date on the sales receipt. (Beginning in California in 1971, the recording of personal information during credit card transactions has become illegal, with the passage of the Song-Beverly Credit Card Act.)

Visa also instructs merchants to ask the customer to sign the card, within full view of the merchant. They then check that the customer’s newly written signature on the credit card matches the signature on the customer’s ID. If a customer refuses to sign a Visa card, the card is considered invalid and cannot be processed. Merchants will then be forced to ask the customer for another form of payment.

Discover

Discover keeps things very simple. The company urges its cardholders to sign the backs of their Discover cards as soon as they activate them.  This is because the signature makes the card valid and a cashier may decline the transaction if the card is not signed. 

American Express

American Express also urges retailers to compare a customer’s signature on the back of an American Express card with the transaction sales receipt. And if an American Express card is presented unsigned, the clerk is to request a photo ID of the customer with a signature. Following this, they must request the customer sign the back of the American Express card and the sales receipt while the clerk is holding on to the customer’s photo ID.

Writing “See ID” on a Credit Card

Should You Sign the Back of Your Credit Card?

Writing “see ID” or “check ID” on a credit card might seem like a great way to protect from fraud. But it actually may invalidate the card. This is because only your valid signature that a merchant can match with a signature on a sales receipt is acceptable. In some cases, the merchant may ask you for another card to make your purchase. To save yourself from a slower-than-needed transaction at the cash register, sign your credit card as intended.

Tips for Protecting Against Credit Card Fraud

  • Only carry the credit cards you need. When you travel, keep a list of the credit cards that you have with you. Make note of their full account numbers and expiration dates, as well as contact numbers for the issuers. It will come in handy if something should happen to your wallet, phone or both when traveling.
  • Go paperless and start checking your credit card statements online to avoid having to keep and shred your paper statements. Just be sure to keep your online passwords in a safe place and to update them from time to time.
  • Check your credit card transactions each month to check for errors or suspicious activity. Quickly report any transaction you don’t recognize to your card issuer.

Find the Top 3 Financial Advisors for You

  • Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

Photo credit: Â©iStock.com/PeopleImages, Â©iStock.com/hsyncoban, Â©iStock.com/RichLegg

The post Should You Sign the Back of Your Credit Card? appeared first on SmartAsset Blog.

Source: smartasset.com

Credit 101: What Is Revolving Utilization?

Aerial view of a young woman with brown hair contemplating her revolving utilization. She has a pen in her mouth and an open notebook on her desk.

According to Experian, the average credit score in the United States was just over 700 in 2019. That’s considered a good credit score—and if you want a good credit score, you have to consider your revolving utilization. Revolving utilization measures the amount of revolving credit limits that you are currently using, and it accounts for a large portion of your credit score.

Find out more about what revolving utilization is, how to manage it, and how it impacts your credit score below.

What Is Revolving Credit?

To understand revolving utilization, you first have to understand revolving credit. Revolving credit accounts are those that have a “revolving” balance, such as credit cards.

When you are approved for a credit card, you are given a credit limit. If you have a credit card with a limit of $1,000 and you use it to buy $200 worth of goods, you now have a $200 balance and an $800 remaining credit limit.

Now, if you pay that $200, you again have $1,000 of open credit. If you pay $150, you have $950 of open credit. But your credit revolves between balance owed and how much open credit you have available to use. How much you have to pay each month—known as the minimum payment—depends on how much your balance owed is.

Other forms of revolving credit include lines of credit and home equity lines of credit. They work similar to credit cards.

What Isn’t Revolving Credit?

Unlike revolving credit, installment loans involve taking out a lump sum and paying it back in an agreed-upon fashion over a set term of months or years. Typically, you agree to pay a certain amount per month for a certain number of months to cover the amount you borrowed plus any interest.

With an installment loan, the amount of your monthly payment is determined by your loan agreement, not the balance due. Common types of installment loans include vehicle loans, personal loans, student loans, and mortgages.

What Is Revolving Utilization?

Revolving utilization, also known as “credit utilization” or your “debt-to-limit ratio,” relates only to revolving credit and isn’t a factor with installment loans. Utilization refers to how much of your credit balance you’re using at a given time.

Here’s how to determine your individual and overall credit utilization:

  1. Look at your credit reports and identify all of your revolving accounts. Each of these accounts has a credit limit (the most you can spend on that account) and a balance (how much you have spent).
  2. To calculate individual utilization percentage on an account, divide the balance by the credit limit, and multiply that number by 100.
    1. $500/$1,000 = 0.5
    2. 5*100 = 50%
  3. To calculate overall utilization (all revolving accounts), add up all of the credit limits (total credit limit) and all of the balances (total spent) on your revolving accounts. Divide the total balance by total credit limit, and multiply that number by 100.

If you have a credit card with a $1,000 credit limit and a balance of $500, your utilization rate is 50%, for example. For the same card, if you have a balance of $100, your utilization rate is 10%.

When it comes to your credit score, revolving utilization is typically calculated in total. For example:

  • You have one card with a limit of $1,000 and a balance of $500.
  • You have a second card with a limit of $4,000 and a balance of $400.
  • You have a third card with a limit of $3,000 and a balance of $600.
  • Your total credit limit across all three cards is $8,000.
  • Your total utilization across all three cards is $1,500.
  • Your revolving utilization is around 19%.

How Can You Reduce Revolving Utilization?

You can reduce revolving utilization in two ways. First, you can pay down your balances. The less you owe, the less your utilization will be.

Second, you can increase your credit limit. If you apply for a new credit card but don’t use it, you’ll have more open credit, and that can reduce your utilization. You might also be able to ask your credit card company to review your account for a credit increase if you’re an account holder in good standing.

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What Is Revolving Utilization’s Impact on Your Credit Score?

Your revolving utilization rate does impact your credit. It’s the second-largest factor in the calculation of your credit score. Your utilization rate accounts for around 30% of your score. The only factor more important is whether you make your payments on time.

Why is credit utilization so important to your score? Because to lenders, it can say a lot about you as a borrower.

If you’re currently maxed out on all your existing credit, you may be struggling to pay your debts. Or you might not be managing your debts in the most responsible fashion. Either way, lenders might see you as a riskier investment and be less inclined to approve you for loans or other credit.

How Do You Know If You Have a Revolving Utilization Problem?

Sign up for Credit.com’s free Credit Report Card. It provides a snapshot of your credit report and gives you a grade for each of the five areas that make up your score. That includes payment history, credit utilization, age of credit, credit mix, and inquiries. The credit report card makes it easy for you to see what might be negatively affecting your credit score.

You can also sign up for ExtraCredit, an exciting new product from Credit.com. With an ExtraCredit account, you get a look at 28 of your FICO scores from all three credit bureaus—plus exclusive discounts and cashback offers as well as other features—for less than $25 a month.

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The post Credit 101: What Is Revolving Utilization? appeared first on Credit.com.

Source: credit.com