What is credit utilization and how can I lower my credit utilization? Your credit utilization is a percentage of available credit you are using compared to your total credit limit. It can be calculated as a total of all balances and on a card-by-card basis. A high credit utilization can hurt your credit score. Ideally, your credit card utilization should be below 30%. Lower percentages demonstrate responsibility and appear more favorable to lenders.
Your debt-to-limit ratio are factored by scoring models such as FICO and VantageScore. By lowering your utilization, your credit score can go up. If your credit utilization is not as low as you’d like it to be, here are some excellent tips to bring it down:
Pay Down Credit Card Balances
By actively paying down your credit cards, your utilization rate will decrease. You can achieve this goal by budgeting or changing your spending habits. With a little effort, your credit score can increase incrementally, meaning you don’t need to achieve 0% utilization to benefit.
Track Credit Card Use
Keep a record of how much you’re charging on each card. If you use more of your credit limit on one card, switch to another or make a larger payment. Avoiding use of credit cards for purchases can also help, as adding to your balances will make it harder to pay down cards.
Ask for a Credit Limit Increase
When cutting into your utilization rate is difficult, try requesting a credit line increase. Your creditor is likely to be more receptive if you have a solid payment history. In some cases, you might receive a temporary increase in your credit limit. You could also ask to become an authorized user on an established account of a friend or relative. If you are accepted as an authorized user, you can obtain a higher overall credit limit.
Apply for a New Credit Card
While this usually involves a hard inquiry, which can lower your credit score, opening a new credit card increases your amount of available credit. Once approved, you will be informed of your credit limit on the card, which factors in your credit history, income, and the card’s minimum credit limit.
Determine When Your Creditors Report to the Credit Bureaus
Your balance and payment activity are usually reported on a monthly basis. If a creditor reports to the bureaus before the payment due date, it may look like you have a higher balance. Knowing when the billing cycle closes and begins lets you adjust your payment timing to an earlier date, so the lower balance gets reported consistently. Another strategy is to pay your cards twice per month.
Don’t Close Out Cards You Don’t Use
Closing unused credit card accounts may seem like cleaning house, but doing so lowers your total credit and increases your credit utilization rate. The impact on your credit score is greater with scoring models that consider the age of your oldest open account; closing that can result in an even lower score.
Apply for a Personal Loan to Pay off Credit Card Balances
Installment loans often have lower interest rates than credit cards. If you’re approved, you can move your credit card balances onto the loan and make scheduled payments over time. This works similar to an auto loan or mortgage. The downsides include qualifying for the loan, getting the best interest rate, and origination fees on the amount you borrow.
Get Expert Help from American Credit
If you have concerns with credit utilization or if something doesn’t seem correct, contact American Credit. Rather than follow the standard dispute resolution process, we use a pre-litigation strategy to get results and work to improve your credit. Contact us today to set up a free consultation.