What are the Fastest Ways to Improve Utilization? 

Do one thing: If you own credit cards and don’t already know what your credit utilization rate is, now is a great time to figure it out. Keep reading for a quick way to calculate yours. 

Credit Usage Insights

Here’s a not-so-fun fact. 

Your credit score can take a hit even when you think you’re doing everything right. Why? One big reason is how much of your available credit you are using, also known as your credit utilization ratio. 

If you are using more than 30% of your total available credit — even though you’re far from maxing out your cards — it can have a negative impact on a big part of your financial health.

For Credit Utilization, Lower is Better

While a 30% utilization rate may not seem like that much, credit scoring models see it as the top of the acceptable limit. Anything higher than that can drag down your credit score – the number between 300 and 850 that serves as a report card of sorts for everyone from lenders to landlords as they look to determine your creditworthiness.  

Calculating Your Utilization Rate

How do you figure out what your utilization is, precisely? Follow these steps: 

• Gather your credit card statements, plus other loans and lines of credit.
• Combine the total balances owed on all accounts.
• Add up your total credit limits (available credit) for every account.
• Then divide your total balances by your total available credit.
• This will give you a number that’s less than 1 — like .70 or .25. Multiply that number by 100 to turn it into a percentage.

Improving Credit Utilization, Quickly

If your credit utilization rate could use some work, don’t panic. There are strategies available to improve that percentage on the way to a stronger credit score. Justin Horowitz, CFP, owner of Just Advising LLC in North Carolina, helps clients work on boosting their credit and finances. Here are some of his suggestions: 

Pay Off Debt

The most effective way to improve or lower your utilization is to pay off some debt.

For the benefit of your own bottom line:

• Focus on paying down the card with the highest interest rate first.
• Continue making at least the minimum payment on all of your other cards and loans.
• Once you pay off the first card, follow the same steps with the next highest-interest card.

Ask for a Credit Increase

You can also work the equation from the opposite direction by doing the following:

• Call your credit card issuer
• Ask for an increase in your credit limit.
• If you are successful – and research shows that at least 50% of those who ask for more credit usually get it – raising your limit would mean your utilization ratio should go down.

If your request is granted, it may take one or two billing cycles for the higher credit limit to be reported to some of the credit scoring bureaus.  

Transfer Balances

You may qualify for a low or no-interest credit card that would allow you to transfer a balance – or a portion of it – to another card. This may improve your utilization because of the potential increase in your total available credit. 

Pro tip: Transferring a balance to a new card will only help lower utilization if you don’t close the other card and you don’t use any more of the available credit you get when opening the new card.

Pause Spending

While you are working to lower your utilization rate:

• Consider cutting out a portion of your non-essential spending (think entertainment and restaurant meals) to concentrate on paying down debt.
• The more spending you can manage to reduce, the faster you’ll be able to improve your utilization.

Keep Old Accounts Open

Your oldest credit cards can help your credit history and, in turn, your credit score. Closing older accounts can raise your utilization ratio, which is the opposite of what you want.

• Hang on to the oldest cards
• Make a small purchase once a month
• Then pay it off immediately

Focus on the Forest and the Trees

When you’re working on utilization, you’re going to want to focus on each card as well as all of your cards combined.  Yes, it’s a little bit of a dance.  But if you pay attention, it’s not as tough as it sounds. 

Set Up Alerts

Once you’ve gotten your utilization under control, focus on keeping it where you want it to be by managing your current and future spending. An easy way to do that is by doing the following:

• Set up alerts on your credit cards.
• Get alerts when balances hit precarious levels.
• If this happens, pay your bill immediately to bring your utilization back to earth…even if it happens to be in the middle of your billing cycle. 

With reporting by Casandra Andrews