Your credit utilization rate can have a dramatic effect on your credit score. When your utilization rate is too high, your score is likely to suffer. In fact, FICO reports that your credit utilization rate accounts for approximately 30 percent of your credit score. Fortunately, there are steps you can take to lower your utilization rate.
Credit Utilization Rate Basics
The term “credit utilization rate” refers to the ratio of your outstanding balances to your available credit. For example, if your outstanding balances total $3,000 and your available credit is $6,000, your total credit utilization rate would be 50 percent. Keep in mind that credit bureaus may also consider utilization rates on individual accounts when determining your credit score.
How to Boost Credit Score by Lowering Your Credit Utilization Rate
An obvious strategy for lowering your credit utilization rate is to pay down your balances. However, the lesser-known strategies detailed below may also be helpful.
- Asking for credit line increases.
Increasing the available credit on one or more of your open accounts will decrease your overall utilization rate, as well as the individual utilization rates for the cards affected. You can typically request credit increases online or by contacting the company directly. However, this strategy will be successful only if your requests are granted. If you do receive a credit line increase, resist the urge to put a higher balance on the card.
- Opening new accounts.
Opening new accounts is another way to increase your total available credit and boost your credit score. However, keep in mind that applying for a new account typically leads to a hard inquiry on your credit report, which may cause your score to dip temporarily. As with the previous strategy, opening a new account will be most effective if you avoid carrying a balance.
- Paying bills before the statement date.
Paying your bills prior to the statement date will decrease the balance reported to credit bureaus, thus decreasing your utilization rates and raising your credit score. For best results, pay your full outstanding balance. If you can’t afford to pay the total balance, just pay as much as you can.
- Adding unreported accounts.
In some cases, an open account may not be reported to one or more of the credit bureaus. Adding these accounts to your credit report may help to improve your overall utilization rate and boost your credit score, as long as the accounts are in good standing and are not carrying high balances.
- Purchasing seasoned tradelines.
You may also be able to lower your credit utilization rate by adding seasoned tradelines to your credit report. A seasoned tradeline is an active account with a solid payment history that is owned and managed by another party. Because you won’t have control over the use of these accounts, adding tradelines to your report will increase your available credit without tempting you to rack up higher balances.