How Credit Utilization Works

Credit Utilization is a ratio of your credit card balance to credit card limit. The higher the credit utilization, the lower your credit score will be. Even though you may be paying on time, every time, it can be alarming to a creditor that you are using too much of your available credit limit. For the highest credit score, credit utilization needs to be below 10% on accounts. On an account with a $500.00 credit limit should not have a higher balance than $50.00.

It may not always be feasible to keep a low balance on your credit card. You really need a higher credit score when you apply for credit. So a simple strategy is thirty days before you know you’re going to apply for new credit, pay down your credit card balance to below 10% of the credit limit and do not use the card again until the lender has made a final decision on your application.

Get a Higher Credit Score

There are three main strategies in dealing with credit utilization issues on your credit cards while maintaining a higher credit score.

• Pay off charges as soon as you make them.
• all your credit card issuer and ask them when they report your account to the credit bureaus. Make your monthly payment 3-5 days before they report. This way when they report your balance you should have a zero or low balance reported every time.
• Call your credit card issuer and ask for a credit limit increase. This will lower your credit utilization keeping the same balance.