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Credit Score Tips: Improve Your Credit Utilization Ratio Without Paying Down Cards


By: Jean Chatzky/ Savvy Money

Credit Score Tips: Improve Your Credit Utilization Ratio Without Paying Down Cards

You may be able to boost your utilization rate with these strategies.

Do One Thing: Unsure of your utilization rate? Take a look at all of your credit card bills, noting your total available credit. Write down your balances and add them up. Subtract how much you owe (the total of your balances) from your total available credit. Example: If you have $10,000 in available credit and owe $6,000, your utilization rate is 60 percent. 

For millions of Americans, using credit cards is a way of life. Unfortunately, research shows that nearly half of U.S. adults with credit cards are not paying off their debts in full at the end of each month. If you are among the 47 percent or so of users who carry a balance, here’s some news you can use.  

What is Your Credit Utilization Ratio?

To build up and even boost your credit score, you need to understand certain terms, including your credit utilization ratio. One of the big reasons we all need to understand how credit utilization works is that it can account for up to 30 percent of your credit score, depending on the credit bureau calculating the number.

And while it may sound complicated, it’s really simple. It’s a ratio of your total credit available compared to the amount of credit used. To know what your ratio is, just deduct what you owe from your total available credit. So if you have one credit card with a $5,000 limit and owe $2,500, that means you are using 50 percent (or half) of the credit available to you and your credit utilization rate is 50 percent. 

Why Lower is Better

Unfortunately, 50 percent is not an ideal utilization rate. Anything higher than a 30 percent rate can ding your credit score. To earn the best scores, in a range from 350 to 800, you should aim to keep utilization to 10 percent or less. So for the example above, that means the person with one credit card and the $5,000 limit would need to have a balance of $500 to have a 10 percent utilization rate. Why is that? Lenders want to see that you have credit and are responsible with it. Historically, those with higher utilization rates also tend to be within a group of consumers who don’t always make on-time payments and default on loans.

Here’s the thing: You have the power to improve your credit score. And when it comes to your utilization, there are steps you can take – besides paying down the balances – to increase that aspect of your score. Consider these options to help lower your credit utilization rate and help pump up your score.

  • Pause Credit Card Use. When you need to lower your utilization rate, it’s time to put away the plastic and start using cash or a debit card for purchases. If you have a hard time not using your cards, put them somewhere secure that’s not easily accessible such as a home safe or tucked inside a desk drawer.
  • Request a Credit Limit Increase. We know it can be hard to ask for more of anything. But it’s important to understand that the odds are not always against you. Research shows that as many as half of credit card holders have never asked for their credit limit to be bumped up. So if you haven’t asked for an increase in a few years – or ever – now is your chance. If you receive a positive response, raising your credit limit should immediately lower your utilization rate. Just remember, you need to be strong and not take the higher limit as an opportunity to go out and spend more. Doing that will deplete some of your new credit and defeat the purpose of requesting the increase in the first place.
  • Consider a New Credit Card. This may seem counterintuitive, but people with good credit can apply for a new card as a way to increase their credit utilization rate. If the request is approved, you should automatically see your ratio improve. You should put this card with your other stashed plastic for safekeeping. 

The Bottom Line: Keeping an eye on your credit utilization ratio – and taking steps to improve it – can help you maintain or build your credit so you can enjoy the perks that come along with a better credit score.