Credit utilization is the amount of your revolving credit lines you’re using. It makes up 30% of your credit score calculation, so it’s a big deal. Your credit lines are the credit limits on your credit cards, and utilization means how much of these credit lines you’re using. Here’s what you need to know to hack this part of your credit score and raise it strategically.
The Myth Of The 30%
You may have heard that if you don’t go over 30% of your credit lines, then you’re golden. At face value, this means you could run up one card but not use the others and still stay below your 30% ratio.
The problem with this kind of thinking is that, first of all, 30% is not set in stone.The level at which your balance utilization will begin to negatively affect your score varies based on your credit score. Second, going over that amount on a single card can hurt your score calculation, depending on which calculation method is used. Some calculate overall and some per card. But although the 30% rule can be misleading, we do have some tips to make the most out of credit utilization.
#1 Track Your Card Usage To Avoid A Spike
If you regularly use your cards and then pay them off each month, particularly with rewards cards, then just track and keep an eye on your credit lines. Make a simple spreadsheet, track your spending on a card, and then cut it off before it goes over 30%.
#2 Pay On Your Card Before The Statement Cuts
The amount spent during the month as you use your credit card doesn’t usually report to the credit bureaus until your statement cuts. If you go over the balance during the month but you pay it down (this is simple to do via your card issuer’s website) prior to the statement, then you should be good.
#3 Use Balance Alerts
Many credit card websites offer a feature to email or text you when you hit a threshold that you set. You can set an alert for 25% or a certain dollar amount so you know to stop using that card and switch to another to avoid utilization dings on your credit score.
#4 Higher Limits Help
The higher your credit limits, given the same level of usage, the lower your utilization. For instance, if your card has a $500 limit and you have $250 on it, that’s 50% utilization. But if it’s raised to $1k, that’s just 25%. Using your cards regularly and paying on time encourages card issuers to raise limits.
#5 Know When The Issuer Updates Your Credit Report
Card issuers have customers with statement dates spread throughout the month, but they may report to the credit bureaus on a fixed day each month. Call and ask so you know how your issuer does it. If the report date and statement date don’t align, you may need to adjust your spending around the report date.
#6 Pay Often, And Never Miss A Due Date
Maxing out cards, missing due dates, or going over limits can all come with stiff financial penalties. To avoid this, consider paying each payday so you never hit the end of the month with balances you might be unable to pay. Using the card issuer’s website, you can make multiple payments each month.
#7 Be Savvy About Rewards
Rewards cards can be beneficial, but know this: if you’re carrying a balance as of your statement date, you will trigger an interest charge. If that interest charge outweighs the rewards on your card, the reward is meaningless. Be savvy with rewards cards to get the most out of them.
If you’re rebuilding your credit score after bankruptcy and need help, Credit Score Keys is here for you. Call 919-495-2365 today for a consultation at one of our North Carolina offices and get your FICO score on track to make the most of the fresh start that bankruptcy offers.