If you have found yourself reaching for your credit cards more frequently, you certainly are in good company. In fact, according to Bankrate, the average American now has more than $5,000 in credit card debt. Still, it makes sense to keep close tabs on your credit card usage.
To know whether you are using your credit cards too often, it is advisable to calculate your credit utilization ratio. This easy-to-determine ratio compares the credit you have used to the credit you have available. Regrettably, if your credit utilization ratio is too high, you may encounter a number of challenges.
Nowadays, it can be exceedingly difficult to pay cash for major purchases, such as a home or a new car. Financing for these items is possible for many consumers, however. Nevertheless, with a credit utilization ratio above 30%, financial institutions might deny your request for financing. On the other hand, if you manage to secure a loan, a high credit utilization ratio might force you to pay substantially more in interest.
As you probably know, your monthly minimum credit card payments usually increase with the amount of credit you use. Eventually, these payments might become unmanageable, causing you to pay late or even miss payments altogether. Late and delinquent payments can cause your credit score to drop drastically, unfortunately.
Landing a job
Some employers perform pre-employment background checks on new employees. It is not uncommon for these checks to include an examination of credit reports. Simply put, if your credit score is low due to a high credit utilization ratio, you might not land your dream job.
Ultimately, if you are unable to pay down your credit cards to get your credit utilization ratio under control, it might be time to look into bankruptcy and other debt-relief options.