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How does credit utilization factor into debt management?

When faced with serious financial strain, many Tennessee residents feel overwhelmed and uncertain about how to proceed. They know that filing personal bankruptcy is an option, but they fear the repercussions that might come with that move. Having a damaged credit score is part of that stress and is one of the primary things that hold individuals back from moving forward with the bankruptcy process. It is important to understand that implementing proper debt management strategies in the months and years that follow a bankruptcy can help rebuild credit scores to pre-bankruptcy levels, if not higher.

Understanding how credit utilization factors into credit scoring is an important part of the process. Credit utilization simply refers to the amount of available credit that the consumer puts to use. According to credit experts, that amount should be limited to between 10 and 30 percent of available credit. That means for a credit card with a limit of $1,000, the balance should not rise above $300.

Savvy consumers will make strategic use of credit cards after bankruptcy to rebuild their credit scores. Some will open cards and use them solely to pay certain recurring monthly bills, and keep those charges right in the “sweet spot” of 10 to 30 percent of the account’s limit. They will also make sure to pay their bills on time, each and every month, and to avoid opening too many new accounts in a short period of time.

By implementing these practices, Tennessee consumers can achieve significant credit score increases over a relatively short period of time. It is estimated that credit utilization accounts for as much as 30 percent of the overall credit scoring rubric. That shows the power that consumers can have over their debt management efforts. For those who are postponing a bankruptcy filing based on fears of credit damage, this realization could help make a decision easier to reach.

Source: nav.com, “The No-Sweat Guide to Managing Your Credit“, Joshua Johnstun, May 31, 2017

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