What is a Credit Utilization Rate?

In Simple words, Credit Utilization rate means the percentage of your approved Credit Limit you already used. Its also Called Credit utilization ratio.

How to calculate Credit Utilization Rate?

the amount of revolving credit you’re currently using divided by the total amount of revolving credit you have available

Credit Utilization rate =

Your Total Credit Card Outstanding Balance  


Your Total Credit Limit on Credit Cards

 

  • What is a Good Credit Utilization rate on Credit Cards (%)?

Your credit utilization ratio describes the relationship between your credit card balances and your aggregate spending limit. As a rule of thumb, your credit utilization ratio should not exceed 50% for very long, if ever. High ratios may adversely impact your credit score UAE and have further negative consequences. To be on the safe side, shoot for a 30% credit utilization ratio.

Credit Utilization rate

Credit Utilization rate

    • Check out our Free Credit Utilization Rate Calculator


 

Credit Utilization rate on Credit Card is an Important factor on Credit Report and Higher Credit Utilization can impact on your overall credit score, Credit scoring companies like AECB, often consider your credit utilization rate when calculating your credit score, But your UAE credit score is composed of many other factors too. If your overall credit report is in excellent condition, It will not have that big an impact if you have a higher utilization for a shorter time.

How can I control my Credit Card Utilization? Should I close my credit cards?

If you are someone who uses credit cards for day-to-day expenses, you probably realize that it is essential to control your credit card Utilization spending. Even if you have the best credit cards in UAE, you still need to use it wisely to gain its rewards.

A credit card in UAE is one of the most common financial tools and also a leading cause of financial distress. In such a scenario, it is extremely important to manage your spending. Do not worry, you do not need to close your credit cards altogether to control your credit utilization. You can simply follow these tips suggested by MoneyMall Credit Blog Team:

 

  • 1. Pay your Credit Card balance in full each month before due date

The best way to keep your credit utilization ratio low and avoid costly interest charges is to pay your credit card balance in full each month. An effective spend-control strategy involves not spending more than you can comfortably pay down each month so that you reduce your likelihood of developing persistent credit card debt.

  • 2. Consider setting a monthly spending limit

This is a more specific approach that takes the “pay your balance in full each month” strategy one step further. Setting a strict monthly spending limit that’s well within your budget increases the chances that you will actually be able to zero out your monthly balance and avoid interest charges. Thus, only spend a specific amount or less each month so that you can repay the full balance easily.

  • 3. Redeem your rewards 

If you have a rewards credit card in UAE, you might be able to use it to help improve your financial wellness. If you have a pure cashback credit card, use any cash rewards you receive to put toward your account balance or direct deposit it into a savings account. Alternatively, if you have reward points credit cards, you can use your rewards to buy discounted gift cards to the stores you know and love and save on future purchases without having to use your credit card. You may also be able to redeem your reward points for cash redemption to put into savings or towards your account. Just make sure you know when your rewards expire to get the most out of them.

  • 4. Set up spending alerts as well as security alerts

If you are worried about controlling your credit card spending, set up customized spending alerts that let you know when you have made an abnormally large payment or exceed a certain balance threshold. These alerts will prohibit you from spending more than your monthly limit. Additionally, the best credit cards in UAE also need to be protected against security threats. So, pair these informational alerts with security alerts designed to flag potentially fraudulent spending patterns.

Thus, it is extremely important to be mindful of the everyday purchases you make on a credit card. This will not only help you to spend less but also improve your credit score UAE and be financially beneficial for you in the long run. When used wisely, credit cards are tools that can help you make more progress along your financial journey.