Credit Utilization: How to Raise Your Credit Score Fast

Reducing your credit utilization can be the fastest way to raise your credit score.

  • Credit utilization equals your total credit card balances divided by your total credit lines.
  • Utilization makes up 30% of your credit score.
  • People with good credit have utilization ratios under 30%. Those with great credit have utilization under 10%.

You can improve utilization by paying down balances, paying them off with installment loans, or increasing credit limits.

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What Is Your Credit Utilization Ratio?

What Is Your Credit Utilization Ratio?

Credit utilization is the amount of available credit that you’re actually using. If you have three credit cards with limits of $1,000, $4,000, and $5,000, you have total available credit of $10,000. And if the total credit used is $6,000, your utilization ratio is $6,000 / $10,000, or 60%.

Credit utilization matters because high utilization is a red flag for lenders. Carrying credit card balances is a sign that you’re spending more than you earn. Eventually, you can’t keep that up and may end up in bankruptcy or a lot of charge-offs.

Low credit utilization means that you pay your balances off and live within your means. In addition, having available credit means you’ll probably be able to pay your bills in an emergency.

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Three Ways to Lower Credit Utilization and Raise Your Credit Score

Because credit utilization is the relationship between two numbers, you can change it by altering either of those numbers — the amount of credit you use or the amount you have. In the example above, the credit utilization ratio is 60%. What if you want to get it down to 20%?

  • You can pay off $4,000 of debt with extra payments. Your balances will drop to $2,000, and $2,000 divided by your $10,000 total credit limit is 20%.
  • You can apply to increase your credit limits. But if you left your balances at $6,000, you’d need $30,000 in available credit to get your utilization down to 20% ($6,000 / $30,000 = .2).
  • You can pay off credit card debt with an installment loan. Adding a $4,000 installment loan and dropping credit card balances by $4,000 doesn’t change how much you owe. But it does change your utilization ratio.

The next way to lower utilization is to actually pay off the debt. That’s the only way to reduce what you actually owe. But not everyone has the money to pay off debt all at once. In that case, paying off credit card debt with an installment loan can drop your utilization and often your interest rate.

This can be a good strategy as long as you know you won’t run up your credit card balances again.

In Trouble With Debt? Get Professional Help

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If your debts are too high for you to qualify for a mortgage, talk to a reputable non-profit credit counseling service. You can get help with budgeting, a debt management plan, or perhaps a consolidation loan. It’s best to put your financial house in order before applying to get a mortgage and buy a home.

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