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Maximizing Credit Scores: Expert Tips on Credit Card Utilization

A good credit score is essential for unlocking various milestones such as buying a new car or home. Although there may seem to be many factors that are beyond your control, one thing that you can impact is your credit card utilization. This article will discuss what credit card utilization is, the best utilization percentage, common pitfalls, and tips on how to improve your credit card utilization.

What Is Credit Card Utilization?

Credit card utilization is the amount of available credit used on your credit cards, expressed as a percentage. This percentage is calculated both per individual card and overall. It is one of the several factors that contribute to the calculation of your credit score.

What Is the Best Credit Card Utilization Percentage?

To maintain a good credit score, it is advisable to keep your utilization below 30 percent for each credit card and overall. Ideally, you should aim to have this percentage both individually and cumulatively. However, if you are striving for perfection, it is worth noting that people with perfect credit scores have an average credit utilization of just six percent.

Common Pitfalls

As you work on improving your credit score it is important to be aware of some common pitfalls that could worsen your score. These include:

  • High interest: If your interest rate is high, or if you lose track of it, interest accumulation and other credit card fees could put you above the 30 percent mark, even if you did not realize it.
  • Getting more credit cards: If you are struggling to pay down your credit cards, getting another card may not necessarily be the solution. This is because it also lowers your credit age, another important factor contributing to your credit score.
  • Paying only minimums: If you can only afford to pay the minimum, do so. However, if you can afford to pay more, paying the minimum can have a negative impact on your credit score.
  • Large purchases: Floating large purchases on your credit card, even for just one month, could negatively impact your credit score as it increases your usage. If you are planning on applying for a loan in the near future, it is best to avoid floating large purchases on your credit cards.

How to Improve Credit Card Utilization

There are several methods you can use to improve your credit card utilization, and the impact may take several months to show on your official score. These methods include:

  • Paying down your balances: Lowering your balances over time will help you lower your utilization percentage.
  • Requesting a limit increase: If you have been a long-time customer of a credit card, have a significant increase in salary, and are always diligent about paying on time, you can request a limit increase from the credit card company to decrease your utilization percentage.
  • Getting a balance transfer credit card: If credit card interest is weighing you down, you can consider getting a credit card with 0 percent interest for a set amount of time (usually 12 – 15 months).
  • Avoid using your cards: While you are paying down your balances, it is best to avoid using your credit cards.

Final Thoughts on Maximizing Credit Scores

Keeping your credit card utilization low is essential for maintaining a good credit score. By being aware of common pitfalls and following the tips outlined in this article, you can improve your utilization and secure a better financial future.

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