5 ways to reduce your credit utilization rate

Your credit utilization ratio is an extremely important part of your credit score. This tells the lender — or anyone else looking at your credit score — what percentage of your total available credit line you’ve used at any given time.

For example, if you have a $100,000 line of credit and you spent $70,000 on it, your utilization rate is 70%. That’s a high percentage, so it’s not a number that’s friendly to a high credit score.

While different credit bureaus calculate your credit utilization ratio in their scoring algorithm differently, the bottom line is that this rate affects your credit score. Ideally, you want to keep your ratio under 30%. For example, if you need to reduce your credit usage to get a better score to apply for business funding, there are several strategies you can utilize to bring that number down.

We’ve written before about strategies to improve your credit, but in this article we’ll focus specifically on credit usage. Here are five ways to reduce your credit utilization ratio.

1. Schedule credit payments more often.

Considering your credit utilization ratio is just – one rate – it’s up to you to bring that number down. If you can, consider paying off outstanding debts, such as business credit card bills, more than once per month.

If possible, you should have your invoices automatically paid so you never miss a payment. For months when your spending is higher than usual, shrink that total from the start so you don’t have to carry such a high balance for the whole month.

2. Transfer balance to credit card 0% APR.

If you’re running a balance on your business credit card, your interest means more money. That interest adds up, increasing your credit utilization ratio.

This actually harms you in two ways. Not only will your balance cost you cash, but it can also result in a higher credit score. In that case, consider signing up 0% referral business credit card APR, many of which will allow you to transfer your balance. These cards have an interest-free introductory period, which means you can carry the balance on your card without paying any extra for a pre-determined period of time.

By transferring some or all of your balance to a new card, you can reduce your overall average credit usage across the cards.

3. Keep your card open at all times.

Not using a credit card? Consider keeping it open. It can really help your credit utilization rate.

The credit limit available on all credit cards in your name includes the total amount of credit you have available to use. If you close a card, that total goes down. That means even if you don’t change your spending, your rates will still go up (which is something you’ll want to avoid).

Before you even think about trying to reverse this concept by signing up for another card to increase your available credit, remember that any time you apply for any line of credit, your credit score will increase. Your credit will be temporarily reduced due to a difficult credit claim. This is also known as “hard to pull” your credit. Too many hard pulls can lower your credit score, and if you’re declined, this can also lower your score.

4. Know when your lender reports to the credit bureaus.

Of course, you will have to make big purchases here and there. And it’s great that you have a credit card to do this! If you’re spending a lot, be clear about when your lender reports to the credit bureaus (generally once a month) will allow you to be strategic.

With this date, you can schedule payments before they’re reported, or not make those big purchases right before your points are reported. Both of these can reduce the rate your credit bureaus receive. You just need to ask your creditors to find out the date.

5. Better handle your spending.

All in all, the smartest thing you can do to lower your credit utilization rate is to really understand the details of your financial life. Know when your lender’s report is part, but the rest is simply understanding what your credit limit is and knowing how close you are to it with every purchase you make. . The best thing about this part of your credit score is that you have control over it. Part of reducing this number is staying in the loop with your spending and payments.

As a business owner (and individual), you can do more with a higher credit score: Get a more favorable business loan, get approved for business credit cards Better for your business, collateral and leverage to negotiate on things like overdue payments. It’s important to do the work to improve your credit utilization ratio if you know that’s where you could do better. In most cases, it can.