Help With Credit Utilization

The biggest factor in your credit score is paying your bills on time, every time. The second biggest? It’s your credit utilization ratio. Let’s take a look at that ratio and then find some ways to keep it as low as possible.

Basics of Utilization

What is credit utilization? Your credit utilization ratio is your total balances across all your credit cards compared to your total credit limit. Ideally, you want this number to be as low as possible. Utilization Goal. A solid goal — and one that will help your credit score — is to get the ratio below 30 percent (but as low as possible is best).

Utilization Example

Let’s say you have a total credit limit of $9,000 for three credit cards, $3,000 per card. Your balance across those same three cards is $1,500, or $500 on each card. Using a credit utilization ratio calculator you can see that your ratio is 16.67%, and that’s great.

Here’s the calculation: 1,500 credit used/9,000 credit limit = 16.67%

How to Improve

Here are a few ways to keep your ratio as low as possible:

• Pay More. You can make more than one payment on your cards per month to keep the balances low. This helps because the credit bureaus report your balances only once per month, so if they see a low number, your ratio remains low.
• Keep Cards. You want to keep credit cards open as long as possible. That’s because the higher your total credit limit, the lower your ratio will be.
• Ask For an Increase. Another way to raise your overall limit is to simply ask your card issuer for a credit limit increase. 

Do One Thing: Call your credit card issuers and ask for a credit limit increase.