Accounting for 30% of your credit score, your credit utilization is the ratio of your credit card balance to your credit card limit. Your score will go down if you have high utilization because your hands are already full, thus making you less qualified for a new loan. To improve your score, keep your utilization under 30% on every account you own. This will tell potential lenders that you’re not under the weight of debts that need to be paid.
How to keep your utilization low
Unfortunately, paying your balance in full at the monthly payment due date won’t work. Banks don’t necessarily report your information on the payment due date, so if you had a high balance on the day that information was issued, your score would suffer.
Adjust your payment due date to come before the statement closing date
Banks submit your account information to the credit bureaus on the closing date, the last day of your billing cycle. You can predict your upcoming closing date by looking at the previous closing date and adding the number of days on your billing cycle.
Then, adjust your payment due date so that it’s 5 days before the closing date. With your payment processed, you’ll have a clean balance when your credit score is calculated.
Pay off your low limit cards first
A big part of credit card utilization is measured by taking the average utilization rate of each card. This means you can be strategic about how you portion your balances.
For example, if you have a $200 balance on a $500 limit card and a $1000 balance on a $2000 card, your utilization rate for each card is 40% and 50%, the average being 45%. If you pay the $200 balance to your other card, you have one card at 0% and the other now at 60%, the average being 30%. Though the total balance is the same, your credit utilization is now 15% lower. So pay down your lower limit cards first to most effectively bring up your score.
Set up balance alerts online
Arrange with your bank so that you receive a text or email when your balance utilization is near the 30% threshold. A good idea is to set it up at 20% so that you’ll have some time to take action.
Increase your credit limit
If you qualify for a credit limit increase, go ahead by all means. An increased limit will bring down your utilization, and you won’t have to decrease monthly spending. Beware, though, that whether your limit will increase depends on your creditor’s discretion. If you don’t have a good history, stable income, or if your last increase was too recent, you may not be approved.
Make sure you’re on top of your credit utilization for every account. Stay below that 30% mark. Remember, credit utilization changes according to how you manage your balance. By using these tips, you can make sure you have the best score possible before important financial moves.