Today’s fantastic family finance article is:
You: “To help maximize your credit score, you’ll want to minimize your credit utilization rate, targeting a range of 30% or below but above 0%.”
Your Teen: “Huh?! Whatever...”
To explain the optimal utilization strategy to your credit card toting teen, try this analogy instead:
You: “Imagine pouring water from a pitcher to a much smaller glass. If you pour all of the water from the bigger pitcher into the smaller glass, you’ll have a mess on your hands. So pour just enough to fill the glass, and leave the rest in the pitcher. Make sense?”
Your Teen: “Well, duh.”
You: “Good. That’s how I want you to use your credit card. The amount of water the pitcher can hold is your credit card limit. It’s the total amount you could spend. The water you pour into the smaller glass is the amount you actually do spend. The glass is about a quarter of the size of the pitcher. Any mess you make by overfilling the glass is the damage you’ll do to your credit score. So don’t overflow your glass, OK?”
Your Teen: “Got it.”
Keeping a low credit card utilization rate is critical factor when it comes to building a high credit score.
So, make sure your teen knows to leave plenty of water in the credit pitcher while filling a modest spending glass. That way, there’ll be no credit score mess to clean up later.
Get tomorrow’s tip here.