4 Ways To Improve Your Credit Utilization Ratio – The credit utilization ratio is a formula that lenders use to determine the amount of credit you have compared to how much you use. Understanding this ratio is important if you want a good credit score.
Pay Down Your Balances
Pay your balance in full monthly to improve your credit utilization ratio. If you don’t, you will pay interest charges and risk being charged late fees. The professionals at SoFi state, “To maintain or boost your credit score, it is recommended the general rule is that you should not exceed a 30% credit card utilization rate.”
The second way is simply to pay off your debt as quickly as possible. If you have an opportunity to do so, you should take it.
Ask for a Higher Credit Limit
One of the easiest ways to improve your credit utilization ratio is by asking for a higher credit limit. If you have a good relationship with your bank, they will be more receptive to increasing your limit and helping you out. They may even offer an increase without being asked!
Make sure that you ask for this increase in writing. The best way to do so is through an email or letter that is sent directly to the bank’s main office, where it can be tracked and responded to quickly. Make sure that it includes all relevant information about yourself, including:
- Social Security Number (SSN)
- Current income level and employment status
- Current balance on each account
Don’t Close Accounts
It may be tempting to think that closing an account is a way to reduce your credit utilization ratio. But this isn’t really the case. When you close an account, it still counts against your overall credit score, even though it no longer appears on your report. If the closed account is one of the most recent ones listed on your report, it will make up less of the total number of accounts listed there than if you had kept it open.
But this approach won’t help you achieve any significant change in your utilization ratio—you should only consider closing accounts if they have been inactive for long periods and thus aren’t helping boost or maintain your score anyway (more on that below).
Get New Cards Only When You Need Them
If you want to improve your credit utilization ratio, don’t apply for a new card if you don’t need one.
- Don’t apply for a new card if you already have a balance on another one. That’s just asking for trouble and can hurt your score in the short term by increasing your overall credit utilization ratio.
- Don’t apply for a card if you already have bad or no credit (a low score). Getting approved would likely mean that the lender is extending their line of credit to someone who they think will not pay them back (which would reflect poorly on their history).
So there you have it, the four ways to improve your credit utilization ratio. This is a great starting point if you’re looking for a way to manage your finances more efficiently and avoid paying interest on purchases. The key is looking at how you can make changes that will benefit yourself and your creditors to ensure everyone wins.
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