Tweaking your credit card balance can quickly boost your credit score

for you Payment history It is the biggest determining factor Your credit scorebut besides total available credit, mix of credit types, and credit history, there’s another important element of your credit file that you should be aware of — your credit utilization ratio.

Representing the percentage of your total available credit that is currently in use, credit utilization can impact anywhere from 10-30% of your credit score. And if your credit limit is relatively low, it won’t cost much to lower the ratio to build your credit score.

If you’re not quite sure how your credit utilization ratio works, don’t worry. We’ll help you understand the impact of your ratio on your credit score and provide you with tips and tools to reduce your credit utilization and increase your credit score. For more, check these out Secret tips to keep your credit score above 800 or Learn about the three main credit bureaus and how they work.

What is the credit utilization ratio?

Your credit utilization ratio is the percentage of available credit that you use. For example, if you have one credit card with a limit of $1,000, and your current balance is $200, your credit ratio is $200/$1,000, or 20%.

VantageScore will only take into account revolving credit, or credit card accounts, when calculating your credit utilization ratio. FICO will consider your credit ratio as part of the “amounts owed” category, which is the amount of total debt you have.

It’s important to remember that VantageScore and FICO monitor your data the total Credit utilization (using the balances and credit limits of all your credit cards) as well as ratios all From your individual accounts. If your overall ratio is fairly low, but you have one card that’s maxed out, that could drag your credit score down.

Perhaps most importantly, credit bureaus do not calculate your credit utilization ratio using your existing credit card balances. They calculate it using account balances that your credit card issuers report to the credit bureaus. Each issuer has its own system, but the numbers reported are often the balances from your monthly statements.

Even if you pay off your credit card balances every month, if you have a high credit score at any time during a billing cycle, it can hurt your credit score.

What is a good credit utilization ratio?

“It is usually recommended that your credit card balances remain at or below 30% of your assigned credit limit,” said Bruce McClary, senior vice president of National Foundation for Credit CounselingCNET said.

According to CBS News MoneyWatcha credit utilization ratio of 50% or higher could lower your score by 50 to 100 points, and a credit utilization ratio of 90% or higher would likely lower it by 100 points or more.

While a credit ratio of 30% or less is a general guideline, those who want excellent credit scores will need to keep it lower. According to the credit rating company Experian“If you’re focused on having excellent credit scores, a single-digit credit utilization ratio is best.”

“The truth is, the lower your credits the better. The more you load, the higher your score will be,” Todd Christensen, director of education at Harvard University. Money is validCNET said.

But you shouldn’t aim for 0% credit. Experian also says, “The only way to ensure you have 0% utilization all the time is to refrain from using your credit cards at all,” which could result in the issuer closing your account, reducing your available balance and increasing your ratio.

How can I lower my credit utilization ratio?

Since the credit ratio is an expression of the money borrowed divided by the credit limit, the main ways to reduce this ratio are to reduce your debt and increase your credit limit. Here are the best ways to achieve this.

Pay your credit card bill twice a month, or more often

Credit card companies report your balances to the credit bureaus on a regular basis, and this number often comes from your credit card statements. Even when you pay your credit card bill each month, if your statement shows a balance that is a high percentage of your credit limit, your credit score will suffer.

If you use your credit card frequently, consider paying it off twice a month, or when your balance approaches 30% of your credit limit. Online credit card accounts make it easy to make or schedule as many payments as you want, and you can set up notifications (see below) for your balances.

If you have a limit of $1,000 and spend $900 a month on your card, a 90% credit utilization ratio will definitely impact your credit score. If you pay it off when your balance reaches $300, or three times a month, your credit score shouldn’t take a huge hit.

Create credit card balance notices

Most credit cards now allow you to create online alerts for your account, including your balance amount. These can be emails, text messages, or alerts through your credit card website.

To protect your credit score, set up a notice when your balance reaches 25% of your credit limit. This balance level will give you some leeway to make sure you stay below the recommended 30%.

Request a higher credit card limit

Increasing your credit limit will help reduce your credit ratio because the amount you owe is now a lower percentage than the maximum you can borrow. Requesting a credit card limit increase is easy – simply call the phone number on the back of your card and speak to a representative.

However, before you ask for a higher limit, keep a few things in mind. This strategy only works if you don’t increase your outstanding balance. If the higher limit will tempt you to spend more, you may want to reconsider.

Also ask your credit card representative if the company will operate a location Hard credit check Before approving your application. Although the higher limit will help your ratio, a hard inquiry could lower your credit score by five to 10 points for a year or so.

Keep old credit cards and use them sparingly

If you have old credit cards that you don’t use often or at all, Don’t cancel it. It will only reduce your overall credit availability and hurt your credit ratio, as well as your average credit age.

However, if you don’t use the credit card at all, the issuer may cancel it due to inactivity. Instead, use old cards sparingly, such as making purchases every few months, in order to keep your accounts open and your total available balance high.

Once you know the principles behind the credit utilization ratio, you can use these tactics to reduce the ratio and boost your credit score.

For more, check out our website Best credit cards for building credit.