Credit utilization is one of the most important components that make up your credit report. To have a good credit score, it’s essential to maintain a healthy credit utilization ratio. Ideally, your credit utilization ratio should remain at 30 percent or less. These industry experts shared their tips on how to lower credit card utilization.
Below are the top 18 ways to lower credit utilization ratio, according to the pros.
1. Pay Your Bills on Time & Report Payments to Credit Agencies
Amber Colley, Business Credit Expert & Senior Vice President, Dun & Bradstreet
It’s important to pay all of your bills on time and to report your positive vendor payments to your business’ credit reporting agency. When your business credit report reflects prompt payments to your vendors, it can help to support the argument that you deserve higher credit limits. Just as important, always monitor your business credit information to make sure all of the efforts you are putting in to pay your bills on time is recorded and shows the true financial strength of your business.
2. Pay off Your Balance Twice a Month
Lyn Alden, Founder, Lyn Alden Investment Strategy
Paying off your credit balance twice a month can reduce your credit utilization ratio. This is because lenders generally report your financial condition once per month. If you pay your card balance only once per month, and your lender happens to report it when you’re near the end of the cycle, and your balance is high, then your credit utilization ratio will be reported as being high. However, if you pay off your balance twice per month and never let your utilization get high — without actually changing your credit limit or monthly spending — then you’ll consistently be reported with a lower utilization rate.
3. Use More Than One Card & Spread Your Expenses
Chelsea Hudson, Credit Card Expert, TopCashback
You can lower your credit utilization by spreading your spending across all cards to avoid one card having a high balance, paying off your balance each month to avoid interest and exceeding the 30 percent threshold and making several payments a month to lower the amount you’ve charged on the card. Spreading your charges across multiple cards will result in a low credit utilization ratio rather than one account with a high utilization.
4. Increase the Amount of Available Credit You Have
Freddie Huynh, Vice President of Credit Risk Analytics, Freedom Financial Network
One way to do this is to ask a credit card issuer for a higher credit limit. The key here is not to use the additional credit as you want that additional credit to remain available. Some people apply for another credit card. Again, the key is to charge only what you can pay off in full and on time every month.
5. Keep a Low Balance by the End of Your Billing Cycle
Steven Millstein, Certified Credit Counselor, CreditRepairExpert
When it comes to lowering your credit utilization, you need to focus on keeping your credit card balance below 30 percent of your limit. To ensure that your credit report accurately reflects a lower credit card balance, you need to keep your current balance low by the end of your closing statement or the end of your billing cycle. You can do this by making a few payments before your statement date.
6. Consider a Balance Transfer
Courteney Reed, Financial Industry Analyst, Credit Card Insider
If you’re trying to lower your credit utilization, you can apply for a new credit card and consider a balance transfer especially if you have high utilization because you’re not able to pay off your cards in full each month. Potentially, this can save you a lot of money in interest fees if used responsibly. Also, opening a new credit card will increase your total credit line across all cards, lowering overall utilization.
7. Find out When Your Issuer Is Reporting
Dustyn Ferguson, Founder, Dime Will Tell
Generally, issuers report ones per month to the credit bureaus. The problem comes in if your issuer reports a few days before the end of your billing cycle as it can look like you are carrying a balance — even if it is paid off the very next day. The best way to combat this is to pay off as much of your balances as you can before the reporting date, instead of the end of your billing cycle. To do this, call your issuer’s customer support line and find out what date they report to the credit bureaus.
8. Request a Credit Limit Increase for Your Credit Card With Utilization Above 30 Percent
James R. Duren, Senior Editor, HighYa
Identify the card with a credit utilization of more than 30 percent but less than 40 percent, call that issuer and ask for a credit limit. If your credit and income have gone up since you applied for the card, there’s a good chance they’ll approve the credit limit increase. Asking for a credit limit increase isn’t a guarantee, though, so there is some element of risk.
9. Set up a Trade Arrangement Instead of Using Credit
Jason Morgan, Owner, Tacoma SEO Company
As a small business owner, one helpful tool to help cover your financial needs that don’t rely on traditional financing is being open to trade arrangements. If you provide a service or product that is commonly used or uniquely desired, ask vendors, clients, or other business connections if they are open to trade. Some might not be open to the idea, but for those that understand the “like cash” value of it, it can be a real lifesaver for both parties. As long as you can agree on the terms, it tends to save both parties money as they do not have to mark up for the traditional sales process and the expenses that come with that. It’s a great way to achieve what your business needs without having it financed or liquidating your cash reserves. This way, you won’t have to use your line of credit for a particular expense which you can trade, helping to keep your credit utilization low.
10. Pay Your Bills Before Your Statement Date
Debbi King, Personal Finance Expert & Author, DebbiKing.com
You can keep your credit utilization low by paying your bills before your statement date. This means not only paying them on time but paying them early. Credit card companies report to the bureau your statement balance after it is posted. By waiting to pay your bill until after you receive it, even though it is on time and that’s awesome, it will still affect your credit utilization in a big way. For example, you have a card with a $1,000 credit limit, and you charged $500 on it for the month. As soon as you receive the statement, you pay the bill. This is great for the paying-on-time portion of your score. However, your credit utilization will be 50 percent. If you pay your bill and the payment post before the statement date, your utilization will be 0 percent. Just a few days can make a huge difference.
11. Keep Old Credit Accounts Open
Brandon Ackroyd, Head of Customer Insight, Tiger Mobiles
Keep old credit accounts open and make sure you use them every now and again for a small purchase every month so that they don’t get closed when the card expires. Even if you don’t use an account that much it is worth keeping open as it will give you a higher overall credit limit. This can make it easier to keep your utilization ratio down.
12. Use Cash Instead of Cards
Kosei Okubo, CEO, Founder’s Guide
The best way to keep your credit utilization low is to stay away from using credit cards especially in small purchases where you can afford to use cash instead. Using your credit card for small, frequent purchases are sometimes the reason for your bloated credit card bills, which increases your credit utilization ratio.
13. Make More Than the Minimum Payment
Benny Ganatra, CEO, Americor Funding
Keep the utilization to around 10 percent to 30 percent on your credit cards. Utilization makes up 30 percent of your overall FICO credit score and maxing out credit cards is the worst thing you can do for utilization rates. Keep a low balance on your card, make your payments on time and always pay more than the minimum. Don’t overuse your card and pay the entire balance off each month because bureaus sporadically check your activity. Pay off your balance little by little to establish payment history and show that you are a responsible cardholder.
14. Don’t Treat Your Credit Card Like a Loan
Paola Garcia, Small Business Advisor, Excelsior Growth Fund
From all the debt products out there for small businesses, credit cards are the easiest to access. However, they should not be treated and used like a loan, which means using a credit card to purchase large equipment or fixed assets. No matter how big your credit limit is, huge purchases will eat up a large portion of it, increasing your credit utilization ratio. Also, you risk not being able to pay off your balance, which will be more difficult for you to lower your credit utilization.
15. Set up Balance Alerts on Your Accounts
Jordan Tarver, Writer, FitSmallBusiness
If you want to lower and improve your credit utilization, it would be beneficial to set balance alerts. Balance alerts can help remind you to pay down your balance multiple times a month and help prevent spending too much of your total available credit, which can help lower your credit utilization.
Credit Repair suggests keeping an eye on your credit card balances to help prevent you from over-using your ideal utilization limit. Check your credit card balances online regularly or call your issuer’s toll-free number to monitor your usage closely. This way, you will know when to stop using your credit card and start paying your balances even before the statement date to free up your credit limit.
To lower your credit utilization effectively, you have to increase your credit limit. One way to do this is to apply for a new credit card, according to Upgrade. However, you should not be tempted to use the new credit card or your additional credit limit to ensure you keep your credit utilization ratio at a healthy level.
The Motley Fool recommends that you try getting yourself added as an authorized user on someone else’s credit card, but you should avoid using the credit entirely. By doing so, that person’s credit limit will be tacked to yours, and this can help bring your credit utilization ratio down. This is especially helpful if you don’t want to open a new credit card for yourself because you want to avoid having a hard inquiry on your credit record.
The Bottom Line
A high credit utilization rate generally indicates that you’re using too much credit and may have trouble paying your bills on time. This is why a lower credit utilization ratio is important to have a good credit score. Use the above expert tips on how to lower credit utilization and keep yours at an ideal rate of 30 percent or less.