Credit Card Utilization Ratio - Lower your credit Utilization

A lower credit utilization ratio is the best for maintaining a high credit score. It shows that you are keeping your expenditure within limits by using a small amount of credit. A high utilization rate indicates that you might not be able to pay your bills on time; therefore, a lower utilization rate - not exceeding 30% - is generally best for your credit score.

You must remember that the credit utilization ratio in each of your credit cards is taken into account, individually as well as collectively, to determine your credit score.

Reducing the Credit Utilization Rate :

Pay Your Balance Early: The credit card issuing companies typically report your credit balance to the credit bureaus at the end of your billing cycle. You need not be worried about how much you are spending each month. If you pay a part, or preferably all, of your outstanding balance before the issuing companies report your credit balance, your credit utilization rate for the concerned cards will remain low.

Reduce Spending: If you notice that it's getting difficult for you to pay your credit card bills on time, you must stop making purchases with your credit cards. The new purchases made may increase your credit utilization ratio, which in turn will reduce your credit score. Use cash or a debit card at this juncture. As you clear off your existing debt, your credit utilization rate might drop and give a boost to your credit score.

Increase Your Credit Limit: A higher credit limit automatically brings down your credit utilization rate, provided that your expenditure or credit balance remains constant.

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