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Credit Utilization Rates: What Credit Card Companies Don’t Want You to Know

Casandra Andrews  |  April 3, 2022

Check out these creative and clever ways to lower your credit utilization rate (when you don't have the cash to immediately pay off your balance).

Say you have a $5,000 limit on your credit card. If you carry more than $1,500 in charges from month to month, which is not a great idea to begin with, it will likely cause your credit score to drop. That’s even if you pay on time every time. And not only will you have to pay interest on the charges that were carried over, the ground you lost on your score could take a while to bounce back.  

That’s because when you use more than 30% of a credit line, it looks far less appealing to credit reporting agencies than, say, if you are only using 10% or less of what’s available. Logical? Maybe. Distressing to those who are looking for ways to boost their score before seeking more credit before a major purchase? Absolutely.

Your credit utilization ratio is the amount of credit you’ve used compared with the amount of credit you have available, says Beverly Harzog, U.S. News & World Report’s credit card expert and consumer finance analyst: “This is important to know because your credit utilization makes up 30% of your FICO score. To avoid harming your credit score, your ratio should be below 30%. But consumers with high credit scores tend to have ratios of less than 10%.”

When it comes to credit, the rules aren’t always intuitive. A majority of Americans, according to a recent U.S. News & World Reports survey, say they don’t really understand how the utilization rate impacts the three number score that impacts so many other things. In the December 2021 report, about 24% of those polled say a higher ratio is better (it’s not) and nearly 36% admit they didn’t know one way or the other. 

Here are some ideas from credit experts for lowering your credit utilization rate so you can start boosting your credit score:

Stop using your credit cards

“Credit utilization is so critical to your credit score and it’s extremely important that consumers get a handle on it,” says Bill Hardekopf with MoneyCrashers. That’s why his first suggestion for lowering your utilization rate is to immediately put away the plastic and start paying with cash or a debit card.  

Ask for an increase of your credit limit

Research shows that at least 50% of credit card holders have never asked to have their credit limit increased, says Harzog. So if you haven’t asked for a bump up in a few years, or ever, there’s no time like the present. If the answer is yes, raising your credit limit should immediately lower your utilization rate. Remember, though, not to spend any more money on your credit card, which could eat up your newfound credit and defeat the purpose of asking for the increase in the first place.

Apply for a new card

This may seem off-the-wall, Hardekopf says, but those with good credit can apply for a new card and if approved stash it away for safekeeping, just not spending: “I would not apply for a bunch of new cards, but you can get more credit (and a lower utilization rate) by getting more credit and not using it.” Coming out of the worst part of the pandemic, he says, has credit card issuers competing for new customers. 

Even if you only plan to use a new card sparingly, make sure to shop around for the best rate. If you find one with a zero introductory APR, you can use it to transfer the balance from a higher card, which might not impact your utilization ratio immediately, but it can lower your payments.

Make micropayments

While some people might think you can only pay your credit card bills once a month, that’s not true for most accounts. “You can actually make multiple payments on your credit card bill throughout the month,”  Hardekopf notes. When you make extra payments, it lowers your balance, of course, and the amount of interest you will be charged if you aren’t in a grace period.

Pay off the balance before the closing date

Ultimately, the best way to keep a low utilization rate is to pay off the balance early every single month, says John Ulzheimer, president of The Ulzheimer Group: “You’ve got to get your statement balance to be as low as possible, or even zero,” he says. “The way to do that is to pay off your balance before your statement closing date. That way, your statement balance is zero and that’s what will be reflected on your credit reports.”


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