Your credit utilization is the percentage of your overall credit limit that you’re using, and it can have a major effect on your credit score. As your credit usage decreases, it can positively affect your score since it shows you’re responsible with credit. On the flipside, high credit utilization can ding your score as it suggests you’re overspending
If you’re wondering how to lower credit card utilization, there are some steps you can take to do so and help build your credit score.
What Is Credit Card Utilization?
Credit card utilization, or simply credit utilization, is how much of your credit limit you’re using on your revolving credit accounts. You can calculate this percentage by taking the total of your credit card balances and dividing it by your total credit limit.
For instance:
• Say you have two credit cards with limits of $3,000 and $5,000 respectively.
• You have a balance of $600 on the first card and $1,000 on the second card.
• By taking the total of your balances — $1,600 — and dividing it by your overall credit limit — $8,000 — and then multiplying by 100 to get a percentage, you’d end up with a credit utilization rate of 20%.
Why Does Your Credit Utilization Matter?
When it comes to your credit score, scoring models look at various factors, including your credit utilization on both individual accounts and overall. In other words, if your overall credit utilization is high, or one of your revolving accounts has a high balance, your score could be negatively affected.
Considering that credit utilization determines 30% of your FICO® score, which is the scoring model used by most lenders, it’s a major factor that affects your credit score.
What Is a Good Credit Card Utilization Rate?
As a credit card rule, you should aim to keep credit utilization under 30%. While this is the baseline, the lower your credit utilization is, the better. Many financial experts recommend keeping that figure closer to 10%.
A lower credit utilization rate demonstrates to lenders that you are responsible with your credit and don’t appear to rely on credit too heavily.
Tips for Lowering Your Credit Card Utilization
The good news is that you can raise your credit score relatively quickly just by lowering your credit utilization. Here’s how to lower credit utilization.
Paying Down Your Balance
Making payments before the due date arrives or the billing cycle ends could mean your balance goes down before your credit card issuer reports the amount to the credit bureaus. You could even make a payment right after your purchase goes through.
Having a lower credit card balance lowers your credit utilization, even if your credit limit remains the same.
Cutting Down on Spending
Budgeting carefully and reducing your spending could prevent you from racking up excessive credit card debt and getting stretched too thin financially.
However, that’s not to say you can’t use your credit card. Rather, limit your spending to what you can afford to pay off in full that billing cycle. Additionally, if you find your debt starting to balloon, consider pausing your credit card usage until you’ve gotten your balance under control so your credit utilization isn’t pushed higher.
Paying off Credit Card Balances With Personal Loans
If you’re carrying a balance on a credit card, one option to pay it off is taking out a personal loan. You could qualify for a lower interest rate, which can make the debt easier to get a handle on paying off. Plus, a personal loan is an installment loan, which means it won’t count toward your credit utilization.
However, you need to make sure you can still afford the payments and can qualify for competitive rates and terms. Some lenders may charge an application or origination fee — take this amount into consideration when deciding whether it’s worth going this route.
Requesting a Credit Limit Increase
Increasing your credit card limit can lower your credit utilization even if your outstanding balance remains the same. To get a credit limit increase, contact your credit card issuer to request one, either by calling the number listed on the back of your card or logging onto your online account.
Keep in mind that your credit card issuer may not approve your request. You may have to meet certain criteria to qualify, such as having a history of on-time payments and responsible credit usage.
Opening a New Credit Card
Opening a new credit card can increase your overall credit limit and therefore potentially lower your credit utilization. Keep in mind that you most likely won’t know what your credit limit will be until you’ve been approved for the card.
Plus, submitting an application generally triggers a hard credit inquiry, which could have an effect on your credit score.
Avoiding Closing Unused Cards
It might sound logical to close credit cards that you haven’t been using, but doing so could have negative consequences. More specifically, closing a credit card lowers your overall credit limit, which could increase your credit card utilization even if your credit card balance remains the same.
Recommended: What is the Average Credit Card Limit?
Becoming an Authorized User
You could ask your spouse, family member, or close friend to add you on their credit card as an authorized user. If the primary cardholder maintains a low balance and has a high credit limit, it could lower your overall credit utilization.
Before going this route, however, speak with the primary cardholder to determine whether becoming an authorized user will help your credit score. You’ll also want to be clear on how you plan on using the card, or if you’d rather be a cardholder in name only.
Finding Out Whether Your Issuer Reports to Credit Bureaus
Most credit card issuers will report your payment activity and account balance every 30 days to the credit bureaus, though the reporting date might not coincide with your payment due date. If your card issuer reports your payment activity before you make a payment, it could look like you have a high balance, which could increase your credit utilization rate.
To remedy this, contact your card issuer to determine when it reports to the credit bureaus. Aim to pay off as much of your balance as you can before that, or request a new due date that’s ahead of when your issuer reports to the bureaus.
How Will Lowering Credit Utilization Affect Your Credit Score?
If you lower your credit utilization, you could build your credit score. Remember, your credit utilization is one of the major factors that affects your credit score. Aim to keep your credit utilization well below 30% — try using any of the methods mentioned above to do so — in order to help maintain your score.
The Takeaway
Credit utilization — the percentage of your overall credit limit you use — can have a major effect on your credit score. It’s best to keep your utilization as low as possible, but the benchmark generally recommended is that it should reach no higher than 30%. If your credit utilization rate has crept up, there are some tactics you can try to lower it, from paying down your balance to getting a new card.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
How can I fix high credit utilization?
You can decrease your credit utilization by paying off your balances early, asking for a credit limit increase, applying for a new credit card, and cutting down on spending.
How can I keep my credit utilization below 30%?
You can keep your credit utilization below 30% by watching your spending and balances across all your credit cards.
How low should I keep my credit utilization?
It’s best to keep your credit utilization below 30%. That being said, the lower your credit utilization rate, the better.
Does zero utilization hurt your credit score?
Zero utilization doesn’t hurt your credit score. However, 0% utilization doesn’t necessarily help your credit score either, as you can’t demonstrate on-time payments and other positive credit behavior.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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