If a bank gives you a credit line of $700 they’re essentially saying that’s the maximum amount they think you can afford to borrow at that time (based majoritively income). When you’re utilization goes up, your credit score goes down because it’s basically an indicator to other lenders that you are close to the maximum amount you can afford to borrow. Because your credit is younger, your revolving credit ends up being a bigger factor. As others suggested your solution to lower utilization is to increase your credit limit to essentially prove you can afford to borrow more. The trick here is to not let the higher limit entice you into spending more. Banks actually want to give you a limit slightly more than what they think you can afford but not more than what they think you’ll ever be able to pay back. Then when you can’t pay a monthly statement in full, they get to charge you additional interest.
And I’ll reiterate what others have said. 775 is still great at your age. Utilization will also have a smaller affect on your overall credit as it ages. Missed payments are the real killers, so I’ll repeat: don’t borrow more than what you can actually afford to pay back each month. Don’t let the higher credit limit make you think that’s how much you can actually spend.
Highly recommend this article on the origins of the credit card.
TLDR; you’re encouraged to use your credit card because banks make money when you do. You’re penalized for high credit utilization because it’s essentially an indictor that you’re nearing your borrow limit.
IceCreamAndBroccoli t1_je8r4bn wrote
Reply to Why are we encouraged to charge everything to a credit card but get penalized for high credit utilization? by New-Row7111
No one is really answering your question.
If a bank gives you a credit line of $700 they’re essentially saying that’s the maximum amount they think you can afford to borrow at that time (based majoritively income). When you’re utilization goes up, your credit score goes down because it’s basically an indicator to other lenders that you are close to the maximum amount you can afford to borrow. Because your credit is younger, your revolving credit ends up being a bigger factor. As others suggested your solution to lower utilization is to increase your credit limit to essentially prove you can afford to borrow more. The trick here is to not let the higher limit entice you into spending more. Banks actually want to give you a limit slightly more than what they think you can afford but not more than what they think you’ll ever be able to pay back. Then when you can’t pay a monthly statement in full, they get to charge you additional interest.
And I’ll reiterate what others have said. 775 is still great at your age. Utilization will also have a smaller affect on your overall credit as it ages. Missed payments are the real killers, so I’ll repeat: don’t borrow more than what you can actually afford to pay back each month. Don’t let the higher credit limit make you think that’s how much you can actually spend.
Highly recommend this article on the origins of the credit card.
https://www.washingtonpost.com/archive/lifestyle/magazine/1994/11/04/the-day-the-credit-card-was-born/d42da27b-0437-4a67-b753-bf9b440ad6dc/
TLDR; you’re encouraged to use your credit card because banks make money when you do. You’re penalized for high credit utilization because it’s essentially an indictor that you’re nearing your borrow limit.