Released: January 20, 2004

Available Credit Can Impact Borrowing Power

MANHATTAN, Kan. – Credit card solicitations are plentiful, but do you need another credit card? asked Esther Maddux, Kansas State University Research and Extension financial management specialist.

“The amount of credit available to you will influence your ability to borrow --Prospective lenders check a consumer’s credit score,” Maddux said.

To check your score, follow these steps:

1.) Add up the total credit available to you.

2.) Add up the amount owed.

3.) Divide the amount owed by the amount of credit available to determine your credit availability score.

Here’s an example: If a consumer has two credit cards each with a $5,000 limit and one card with a $10,000 limit, the total credit available is $20,000. The amounts owed on the cards total $4,000. Divide $4,000 (the amount owed) by $20,000 (the amount of credit available). The answer is .2 (or one-fifth), which is considered a low credit score.

Lenders prefer a lower credit score, she said.

A higher score may discourage prospective lenders or could mean a higher interest rate on a loan, said Maddux, who offered this example: Suppose a consumer has one credit card with a $5,000 limit and currently carries $4,000 in debt. Divide 4,000 (the amount owed) by 5,000 (credit available). The answer is .8 (or four fifths) – a higher, and less desirable, credit score.

“The card holder has only $1,000 of credit still available,” she said.

“How much credit you can realistically repay, rather than the amount of credit available, determines wise credit management,” Maddux said.

Before applying for a credit card or a loan, weigh current financial needs, existing debts and long-term financial goals, such as purchasing a home or new car or saving for retirement. Reducing debt and increasing savings is advisable, she said.

For more information on family issues, contact the local K-State Research and Extension office or visit Extension’s Web site: www.oznet.ksu.edu

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K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well-being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus, Manhattan.

Story by:
Nancy Peterson, Communications Specialist
nancyp@oznet.ksu.edu
K-State Research& Extension News