How can paying off your credit card in full each month still hurt your credit score?

Imagine charging $1,000 each month on your card, paying it off in full and still seeing your credit score go down? What gives? The answer can be found in your credit utilization rate. This is the amount you charge divided by your credit limit. If you charge $1,000 each month and have a $1,000 credit limit your utilization rate is a whopping 100%!! To keep your score in good standing, you should have a rate of 10-30%. Which means you should only charge $100-$300 a month to keep your credit score from falling. The idea is if you have a high utilization rate creditors assume you have poor self control even if you pay your bill in full each month. To solve this problem you can charge less, ask for an increase in your credit limit, or open up another account but keep your balance low. Your credit utilization ratio is determined by all the available credit you have available. Opening up more accounts but keeping the balance low and paying it in full will actually improve your credit score.

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