Jump to main content

Our Blog

Keep Your Credit Card Utilization Below 20%

Posted on September 1, 2017

There are several things that have a big impact on your credit score, but only one is a thing that most people could change today. If you want some quick tips for boosting your credit score, read on.

According to FICO, (of the famous FICO Score), there are a bunch of factors that help determine a person’s credit score, but only a few that – on their own – have a big impact.

For instance, paying bills on time (or not) determines 35% of the score, while the length of a person’s credit history only accounts for 15% of the score.

Another big factor is utilization – or the amount of available credit one is using. The amount of debt you carry accounts for 30% of your score, but this overall amount is weighed against the amount of credit extended to you.

For example, if the total of your credit card limits is $10,000, and you are using $5,000 of this, your credit card utilization is 50%.

As a general rule, you should keep your utilization below 20%. This is considered excellent, and keeping your utilization low will help you to supercharge your credit score ahead of a big purchase like a home or car.

So, how do you make this happen?

Pay It Down

The simplest way to lower utilization is to simply pay down your cards. It may be advantageous to transfer some savings to this pay down, or to sell some things and raise cash. You could also see your credit union about a personal loan, which would help you to consolidate high interest credit card debt into a lower interest installment loan.

Raise Your Limits

Another way to lower utilization is to create more “head room” on your accounts by getting your credit limits raised. How do you do this? Ask! According to a Bankrate report, a full 78% U.S. credit cardholders who have asked for a higher credit limit have been approved. However, just 28% of cardholders have asked. Call your credit card issuers, point out what a great customer you’ve been, and ask for a credit limit increase. You could see your utilization rate drop tomorrow.

Open a New Account

This one seems like cheating, but it can work. By opening a new credit card account you automatically raise your overall credit limit, and lower your present level of utilization. Just make sure that you are likely to be approved for a given card before applying. Do that by getting a hold of your credit score, then going to Nerd Wallet, Credit Karma or one of the other “card comparison/offer sites” to compare your score against the data they have on different cards.

Spread It Around

Not only is it important to get your overall utilization number down, it’s also good to reduce it for each individual credit account. So, don’t load up one card to 70% of the limit while leaving another with 0 balance. Spread the debt around (interest rates and other terms being equal).
Of course, the best way to reduce utilization is to go with tip #1: pay it down. Get rid of that debt as fast as you can.