Credit scores are complicated, and many things as we may think are normal, may actually adversely affect your credit.
For instance, many people don’t realize that there is such a thing as using too much credit.
Sure, you may have lots of credit cards with high limits, however, if you want to maintain a good credit score, you really need to watch your spending.
One method of doing so is by making sure you are always using less credit than is available to you.
With that in mind, here is a closer look at how this works.
Why Keeping Balances Low is Important
Firstly, when it comes to your credit cards, it is important to keep your balances low.
This is especially the case when it comes to revolving credit, which allows you to continuously borrow money up until a certain limit.
While these limits seem to be set in stone, they can often be raised.
This is not only a good way to get into lots of debt, which you may struggle to repay, but it can also adversely affect your credit score.
Therefore, those who are not careful in terms of how much credit they are using can end up with astronomical balances as well as terrible credit.
How High Credit Utilization Affects Your Credit Score
If you are constantly using most of your available credit, this will become a major problem.
This is especially the case if you are only making minimum payments and cannot really afford to pay your credit cards off in a timely fashion.
This is because the balances of your credit cards are regularly reported to credit card agencies and those who constantly have high credit utilization scores are deemed to be problematic.
Generally speaking, most people will pay credit cards off as quickly as possible, to avoid excess fees and other issues.
When this is not possible, it starts to make it look as though you are living beyond your means and can’t truly afford your lifestyle.
Therefore, you become a credit risk in the eyes of most lenders.
Therefore, people with bad credit looking to improve their credit score should start by lowering their credit utilization scores.
Tips for Lowering Your Credit Utilization
If you are looking for ways to lower your credit score, there are several ways to go about this.
Some of which are as follows:
- Request Higher Limits: Although it may seem to be counter-productive, requesting higher credit limits is a great way to reduce your credit utilization scores. This is because this is a way to immediately lower your rate of credit utilization. However, if you are the type that has terrible spending habits, this could be risky. Additionally, there is no guarantee that your credit card company will approve the increase. Applying for increases and making inquiries can also adversely affect your credit score.
- Create Balance Alerts: It’s easy to overspend when you aren’t paying attention to your spending. Depending on what your credit situation is, one bad move can result in a skyrocketing credit utilization score. However, by setting balance alerts, you will be notified whenever your credit card limit reaches a certain point.
- Make More/Higher Payments: If possible, you should also try to make higher payments or pay your bills more than once a month. For instance, if you are able to make higher payments, this will help you lower your utilization score much faster. On the other hand, if you are able to make smaller payments twice a month, this is a great way to reduce your credit utilization score.
- Track Your Statement Closing Date: Another thing you can do to lower your credit utilization is to start tracking your statement closing date. This is because the balance you owe on your statement is what will be reported to the credit bureaus. So, if possible, you want to pay your bill down as much as possible before the statement closing date.
- Become an Authorized User: Another way you can lower your credit utilization score is by becoming an authorized user on someone else’s account. If you have a friend or family member who is willing to add you as an authorized user, this can be another way to lower your utilization rates. As long as the credit card you are being added to has low credit utilization rates, you will be able to benefit by being added to their credit card as an authorized user.
Overall, people with bad credit looking to improve their credit score need to do their very best to reduce their credit utilization rates.
Some methods of doing so are creating balance alerts, requesting higher limits, tracking your statement closing dates, and making sure you pay your credit cards before, which can be very effective ways to reduce your utilization rates.
Moreover, if you have someone in your life with great credit, being added as an authorized user can be an easy way to help you start lowering those rates.
Either way, if you are serious about achieving good credit, focusing on lowering your credit card utilization rates is one of the best things you can do.