How to Lower Your Credit Utilization Ratio (2024)

FAQs

How to Lower Your Credit Utilization Ratio? ›

Make frequent payments

A high credit utilization ratio indicates that you might struggle to meet your current financial obligations. Since lenders have to reduce their risk and increase their odds of getting paid, new lenders may decline to give you new credit; existing lenders could even lower the spending limit on your existing accounts.

A general rule of thumb is to keep your credit utilization ratio below 30%. And if you really want to be an overachiever, aim for 10%. According to Experian, people who keep their credit utilization under 10% for each of their cards also tend to have exceptional credit scores (a FICO^® Score^☉ of 800 or higher).

To maintain a healthy credit score, it's important to keep your credit utilization rate (CUR) low. The general rule of thumb has been that you don't want your CUR to exceed 30%, but increasingly financial experts are recommending that you don't want to go above 10% if you really want an excellent credit score.

You make one payment 15 days before your statement is due and another payment three days before the due date. By doing this, you can lower your overall credit utilization ratio, which can raise your credit score. Keeping a good credit score is important if you want to apply for new credit cards.

Using more than 30% of your available credit on your cards can hurt your credit score. The lower you can get your balance relative to your limit, the better for your score. (It's best to pay it off every month if you can.)

You should use less than 30 percent of your credit card's credit limit, especially if you want to avoid any damage to your credit score. The lower your credit utilization ratio is, the better off your credit score will be. The ideal credit utilization percentage is between 1 and 10 percent of your credit limit.

Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.

Maintaining a 0% utilization rate on all your credit card accounts can help your credit scores, but you can achieve excellent scores without doing so. A low utilization rate, preferably under 10%, is ideal.

It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.

Why is my credit score going down when I pay on time? ›

Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.

This means you should take care not to spend more than 30% of your available credit at any given time. For instance, let's say you had a $5,000 monthly credit limit on your credit card. According to the 30% rule, you'd want to be sure you didn't spend more than $1,500 per month, or 30%.

That said, making two payments per month actually can help your score—but for a different reason. This strategy makes your credit utilization ratio appear lower, which can boost your credit score in the long run.

If you typically carry a balance on your credit card from one month to the next, then making multiple payments during each billing cycle can reduce your interest charges overall. That's because interest accrues based on your average daily balance during the billing period.

Consistently paying off your credit card on time every month is one step toward improving your credit scores. However, credit scores are calculated at different times, so if your score is calculated on a day you have a high balance, this could affect your score even if you pay off the balance in full the next day.

70% utilization across all accounts is pretty bad and will have a significant negative impact on your credit score. 70% on just one account is also not good, but not as terrible as the first scenario. It will still have a negative impact on your credit score.

Pay down debt

Reduce your credit card balances by paying more than the minimum each month. Consider making two or more payments on your credit cards throughout the month—even small, extra payments can speed up debt payoff and help keep your utilization ratio low throughout the billing cycle.