September 30, 2022

5 Ways to Lower Your Credit Utilization Ratio

Credit Utilization Ratio

Individuals that look out to borrow, will always need a balanced and low credit utilization ratio. It is the amount of credit that has been utilized by the individual on behalf of the credit limit offered.  Suppose your sanctioned amount is 10,00,000 and you have used 70,000, which means your credit utilization percentage is 70% and that is quite a high percentage. It is not a score that will give you a friendly credit score. You will have to decrease the credit utilization ratio, as the ideal one is always below 30%. The ideal credit utilization percentage is 30%, and that gives you a good Experian credit score. It is an important factor that the loan providers will check and, based on this factor, the credit score is determined. You must work on this to show financial stability and credit health. You can do a credit score check for free online.  There are some more strategies that will help you determine the credit utilization ratio in the right way. 

What is credit utilization? 

It is important to understand the concept before you delve into strategies to improve it. Every individual gets access to some line of credit. It can be a loan, a credit card, or a line of credit. The credit utilization concept is how much credit has been utilized by individuals on the basis of the available limit. It is not a good idea to completely exhaust the credit limit that you have been offered. Suppose you have a credit card with a limit of 50,000 rupees. You can not afford to exhaust the entire credit limit. Even if you do, you need to make the payment and then again get back the credit limit. This way, you need to limit your credit utilization to a ratio of 30% as that is an ideal one. An individual with an exhausted credit utilization ratio of more than 70% is considered too risky to borrow any further. 

Strategies to lower credit utilization ratio

  • Automate your payments: Payments need to be made on time. You can not afford to delay the payment. If you do, you will have high credit utilization. If at all you are not paying your bills on time and the credit limit will be exhausted. Automate your payments, as that is a good option for people that lose track of bills and due dates. When you automate your payment, the credit is automatically debited with the amount that you are supposed to pay. This will ensure that there are no missed payments and you quickly get back to the available credit limit with time. This increases the possibility of a good credit limit utilization ratio. You use credit and pay it on time. This will maintain the balance right. 
  • Pay more than needed: If you have a high credit utilization ratio and you feel that you need a good credit score, improve it. The credit score comes with a balanced and low credit utilization ratio. What you can do is pay more than the payment. If you have used up a good amount of credit, pay more than the minimum balance so that you free up the credit availability. This will help you with a balanced credit utilization ratio without any hurdles. It is easy and will surely help you work out things in a better way to get a good credit score. 
  • Don’t keep overdue: When you pay your credit card bills, you should not focus on minimum bill payments. The payment should be made for the total bill amount and not the minimum bill amount. Do not keep any overdue or outstanding amounts that are pending. It will increase the credit utilization with extra charges and late fees. It becomes more expensive and you also lose a good credit score. 
  • Keep your cards open: You may have credit cards that you do not use anymore. It is fine if you don’t use it. However, you need to keep the credit accounts open and don’t close them. If your credit age is more, you will always have a good credit score. New credit is not a good option, but an old one is. Even when you don’t use it, make sure the account is open. 
  • Spend wisely: Credit utilization should be done only when you are out of cash, need, or in an emergency. Do not borrow out of habit or just because you want to have fun. Make sure you have valid reasons for borrowing and utilizing the amount. 

Finishing up

For a credit score check free online, you need to visit the Clix Capital website. You will get the Experian credit score for free within a few seconds. It is one of the best habits to keep yourself updated about your credit behavior and activities. 

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