A low credit utilization ratio is one of the best ways to improve your credit score. This demonstrates that you can responsibly manage your debt, which means you’re less likely to default on payments and damage your credit. However, it’s important to use this statistic wisely so that you don’t hurt rather than help your score by lowering it too much. Here are three ways you can reduce the amount of available credit used from month to month.
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Pay off your balance
Paying off your balance in full is the best way to reduce your credit utilization ratio. The experts at SoFi recommend, “In addition to watching your credit card utilization rate, try to make payments on your credit cards on-time each month.”
If you cannot pay the entire balance, ensure that at least one of your accounts has a zero balance and the rest have minimum payments on them. This ensures that you won’t have multiple accounts with a high balance (which increases your overall credit utilization rate) and that all of your cards are being actively used for purchases or payments every month (which improves their standing).
Increase your credit limit
To increase your credit limit, call the company that issued you the card and ask them to raise it. They’ll probably ask you why, so be prepared with an answer. If they say no, ask them what more they need from you to give you a higher limit. Then do those things and then ask again! It might take some time, but it’s worth it if it helps reduce your credit card utilization rate.
If you can’t increase your limit through this method or if there isn’t enough room on your current cards to put all your monthly expenses (more on this later), try getting another card with a higher limit.
Spread it out over different credit cards.
The ideal credit utilization ratio is somewhere between 10 and 30 percent. If you have a lot of high-interest debt (anything over 6%), it might be a good idea to pay that off before focusing on your overall utilization rate.
To reduce the amount of money you owe on your credit cards, try spreading out your spending across different cards by only allowing yourself to use one card at a time. That way, if you spend $10,000 on one card in one month, but only spend $5,000 each for the next two months with another card, then all three accounts will still have equal values after three months. This method lets you avoid getting into too much trouble with any one account and keeps balances from stacking up too high overall.
Paying off your balance is the key to reducing your credit utilization ratio. If you have a high balance on one card, this can be difficult and may require some sacrifices in other areas of life. However, if you’re unable to pay it down immediately, try increasing your credit limit so that you don’t use too much of what’s available. Finally, if these options aren’t right for you, consider spreading out your expenses across multiple credit cards instead of carrying them all on one card, so they don’t affect each other when calculating ratios.