These days, gas prices are spiking significantly, leading many to put more money than they should on their credit cards. This is an all-too-common problem that can have a severe impact on a borrower’s credit score.
With gasoline prices at sky-high levels across the country, many consumers are now being given no choice but to put their fuel purchases on their credit cards as a means of making ends meet. But this can have a negative effect on consumers’ credit scores and put them in some pretty deep debt if they’re not careful.
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It can also be inconvenient, according to a report from the Fairfax News. That’s because when credit cards reach their limit while drivers fill their tanks, the pump usually just shuts off, meaning that these cardholders are stuck with a maxed-out balance and a tank that’s not as full as it needs to be.
Of course, a borrower’s credit utilization should never be allowed to get close enough to the limit that this will happen, but for some people, it’s unavoidable. Gas is often necessary for people to live their day-to-day lives, so fitting these purchases into a family budget every month – and avoiding the use of credit cards – might take a little bit of work.
Overspending of any kind will have a severely negative impact on your credit score because the second-largest portion of borrowers’ credit scores is the credit utilization ratio – that is, the amount cardholders are borrowing at any one time versus what their total combined limits are. The more borrowed, the lower this aspect of the score. In most cases, experts recommend having a credit utilization ratio of no more than 20% or 30% of the total card limit, but the lower this number gets, the better.
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Of course, putting too much on a credit card will obviously also have the extreme negative impact of sinking consumers into debt, sometimes severely. This can lead to even more shortfalls and debt every month because of increased minimum payments and high interest compounding the amount owed.
The key to maintaining good credit health is borrowing responsibly, looking for ways to make sure debt totals stay relatively low, and making all payments on time and in full.
Image: ^riza^ via Flickr