How to keep your credit utilization ratio low

How to keep your credit utilization ratio low

September 1, 2016
credit utilization ratio
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Your credit utilization ratio is one of the things that matter most when it comes to your credit score. In fact, it makes up 30 percent of your credit score. That’s why it’s so important that you take care of your credit utilization ratio and make sure that it doesn’t exceed 30 percent.

What is your credit utilization ratio and how it works

Before you learn how to keep your credit utilization ratio low, you have to understand what it is. Credit utilization is the ratio of your credit card balances to credit limits. To calculate it, you simply divide your credit card balance by your credit limit and then multiply the result by 100. The lower the resulting number is, the better. Because it shows that you’re using just a small amount of your credit. And this means that you’re able to pay what you owe, which is something that your lenders absolutely love.

What you can do to keep your ratio low

Because your credit utilization ratio makes up almost one third of your credit score, you need to be careful and always make sure that it stays below 30 percent. Here’s how you do it:

1. Always keep an eye on how much you’re charging to each card

This is the easiest way to avoid over-utilizing your available credit. If you make a habit out of checking your accounts to keep tabs on your spending, you will be safe and you will never pass that 30 percent mark. When you start approaching that threshold on one card, just start using another. It’s important that you keep your balance below 30 percent on all of your cards, if you want to have a good credit score.

2. Set up balance alerts

If you can’t remember to check your accounts, no worries. Just tell your issuer that you want to receive balance alerts via email or text messages when you’re getting too close to the dreaded 30 percent threshold.

3. Raise the credit limits on your cards

If you tend to spend a lot each month, you might want to request a credit line increase on your cards. This way, you’ll be able to spend the same amount each month, keep your lifestyle unchanged and still not affect your score.

But be aware that requesting a credit line increase can lead to a hard inquiry. And this might cost you a few points on your score. It’s up to you to decide if it’s worth it.

4. Find out when your reports are sent to the credit bureaus

Your issuer usually sends your credit report to the credit bureaus once per month. But this doesn’t necessarily coincide with when your bill is due. So you might look like you’re carrying a high balance, if your issuer sends these reports some days before you pay your bills. Calling your issuer and asking when they report to the bureaus can save you a lot of headaches.

5. Pay your balance more than once per month

By paying your balance off twice a month you won’t have to worry about when your reports are sent to the credit bureaus or if you exceed your limits.


Thomas Hookton

Thomas Hookton is a finance journalist, history buff and science fiction connoisseur. Hit him up via email.

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