How much credit you use plays a significant role in your credit score. High credit use (also known as credit utilization) is a red flag for banks that you may have trouble with your finances and paying bills on time. These warning signs can then lead to rejection on your next loan applications (even for things like mortgages, auto loans, and more). Here is how to lower your credit utilization and boost your credit score.
How to Lower Your Credit Utilization and Raise Your Credit Score
Credit utilization is one of the biggest impactors on your credit score. Your credit utilization – or the amount of available credit you actually use – accounts for 30% of a person’s FICO Score and 23% of what makes up a VantageScore (using the VantageScore 3.0 scoring model). Simply put, credit utilization is essential – and keeping your credit use low is critical to maintaining (or building) a good credit score.
Reduce Your Credit Use by Paying Down Balances
The simplest way to lower your credit utilization is to pay down your existing credit card balances. Paying down credit card balances has the double impact of reducing your credit use and saving you money in interest charges.
Lowering your credit use and paying down balances isn’t as straightforward as it sounds, however. Credit card issuers report balances to credit bureaus at different times. Some banks report once the statement period ends, for example, while others report the balances of all accounts at the same time, regardless of the statement closing date.
There are two approaches to try and ensure your payments are being fairly reported to the three major credit bureaus:
- Check with your card issuer to see when they report to the credit reporting agencies.
- Pay down your balance early by making multiple payments every month.
Increase Your Credit Limits
Another straightforward way to lower credit utilization is by increasing your credit limits. Raising credit limits lowers credit use instantly – especially when used in conjunction with reducing spending. Increasing your credit limit can be as easy as calling your bank and requesting a higher credit line. However, keep in mind that banks won’t always grant credit limit increases – and any increase will depend on your payment history, the length of your relationship with the bank, and your credit score.
Having bad credit doesn’t necessarily mean you can’t get a credit limit increase. Some credit builder credit cards offer a straightforward approach to gaining additional credit, with two notable options from Merrick Bank.
Merrick currently offers the Double Your Line™ Visa, which comes in an unsecured and secured form. The unsecured Merrick Bank Double Your Line™ Platinum Visa® allows cardholders to instantly double their credit limit after making seven on-time payments after opening an account. This feature means cardholders can potentially watch their credit line go from $1,350 to $2,700 in a little over half a year.
The secured version of the card, the Merrick Bank Double Your Line™ Secured Visa® is similar in that cardholders can increase their credit limit, but unique in that it also helps them take the giant step from secured credit card to unsecured card. After making seven on-time payments, cardholders enjoy doubling the credit limit – without the need for an additional security deposit.
Don’t Close Old Accounts
Avoid closing old credit card accounts you no longer use. You might think clearing the clutter of unused credit cards might help – but the reality is the opposite.
Closing old credit card accounts lowers your credit score in two ways. First, removing old accounts from your credit report will lower the average age of your credit history. This credit factor is much less important than payment history or credit use but plays a role in what comprises your credit score. Second, closing unused credit accounts lowers your credit use by eliminating existing open credit lines.
Related Article: What Are the Easiest Credit Cards for Bad Credit to Get?