10 Credit Utilization Tips To Skyrocket Your Credit Score
Here’s the gist of it: how much available credit you’re using becomes one of the most important factors, second only to making timely payments. Meet the credit utilization ratio. Simply put, it’s the amount of credit you’re using in comparison to your credit limit. If you have a credit limit of a $5,000, and you have a balance of $2,500 on your card, your credit utilization ratio would be 50% (which would be way too high to be good for your credit score, according to most experts). In fact, most would agree that having a balance of over 30% can damage your credit. Lower your credit utilization ratio and kick your credit score out the park with these 10 steps.
1. Welcome to the Credit Score Bureau
Understand how the credit score system works. Essentially, each month, your balance is sent to the 3 major credit bureaus by your credit issuer. This data then pops up in your credit report. When the new credit card balance comes in, it replaces information from the previous month.
2. Say When
Understanding credit score bureaus takes us to the next step: find out when your card issuer actually reports to the credit bureau. The date they report this balance doesn’t always coincide with when your bill is due. If the reporting date is a few days before your billing cycle, and you haven’t paid down the balance yet, you might look like you’re carrying a large balance. You can avoid this problem by calling your issuer’s customer service. Find out when they send the report, and simply pay the balance before that date every month.
3. Pay Not Once, But Twice Per Month
The trick here is to halve the time between each payment so that your credit utilization ratio is always below 30%. Set up an automatic twice-monthly payment to your card to make it easier. This’ll be a good alternative to the option above if it’s too much of a hassle remembering when the credit issuer sends the report, or if you simply don’t like calling customer service.
4. Raise the Roof
Ask for a credit line increase on your card. This is a different route you can do in terms of avoiding using 30% of your available credit. This is a great option if you’re not able to pay down your debt—just raise the ceiling. At the same time, remember that you want to continue to keep the balance low. Don’t go on a spending craze. As a word of warning, know that doing this may make you lost a few points in your credit. As long as you’re dutifully everything to keep up a good credit score though, you should be able to bounce back.
5. Just Do It
Sometimes the simplest choice is the smartest choice. The easiest thing you can do to lower your credit utilization ratio is to completely pay off your balance every month. It’s a quick, no-brainer, fool-proof solution. If you have the means, this is your best option.
6. Retail Credit Cards: Thank You But No Thank You
You want to avoid opening up that new Macy’s card, because retail store credit cards usually have very low ratios. This is due to the fact that they generally have low credit limits, and having one may encourage you to go on a shopping spree. One large shopping experience could shoot your credit utilization ratio over that bar of 30%. So give a big smile and politely decline that bright red card.
7. Spread It Around, Baby
Instead of blowing up your credit utilization ratio on one card, why not use several cards and keep it low on each? The key thing to remember here is that credit bureaus may assess your utilization ratio based on individual cards AND their collective totals. So be careful to keep your ratio at 30% or less on each card in addition to the total. Also, if you don’t already have multiple accounts you can do this with, make sure not to open up too many new accounts in a short time span.
8. Check Yourself Before You Wreck Yourself
Make it a habit to always check your balance on your credit cards. You can’t fix or monitor your credit utilization without knowing what it is first. Then, make your move to pay up as soon as you are inching towards 30%. If you can’t make the payment, switch it up by using a different card for your purchases.
9. Hello, Mr. Robot
Technology can sometimes be your friend. If you’re having a hard time remembering to check your accounts online, set up balance alerts so that you get them through text message or email. This way, it’s almost guaranteed that you’ll see that 30% limit creeping up. One thing to remember is that it’s a good idea to set the alert so that it warns you at 20%. That way, you’ll have more time to pay your balance off before you hit that 30%.
10. Stop, Drop, and Roll
Setting an imaginary limit is a great way to improve your credit score. Ignore your actual credit limit and develop a discipline of responsible spending. Having a $4,000 doesn’t mean that you should buy a $4,000 suit. Keep a 30% limit and stick to it. Budgeting is another great way to follow this step.
A Summary of the 10 Steps
- Understand the process of how your credit scores are reported
- Know when the credit card issuers reports your balance and pay before that reporting date
- Pay 2 times a month instead of once to consistently keep that credit utilization ratio low
- Raise the credit limit while maintaining the same balance
- Just pay off your total balance
- Avoid retail store credit cards
- Spread your balance among several cards instead of one
- Make it a habit to always look at your balance
- Set up email and text alerts to remind you of upcoming credit card bills
- Ignore your actual credit limit and come up with a credit limit in your mind that’s much lower
As you can see, there are a whole host of options in keeping down your credit utilization ratio. Choose which method is convenient and effective for you in keeping that balance low, thereby skyrocketing your credit score. When seeking credit repair, remember that coming up with an effective strategy means figuring out how that strategy fits your lifestyle. The FICO scoring model and its rival VantageScore ranks credit utilization ratio accounts for one third of your credit score. In other words, it’s really, really important that you look at how much you pay off, but how much is owed—because that’s what the credit bureaus look at.