Credit card utilization has major impacts on your credit score

There are several things that have a big impact on your credit score. The most important ones, according to FICO®, are your payment history and utilization. Your payment history determines 35 percent of your credit score. This is the record of when you pay your monthly bills and whether you pay them on time. Late or missed payments negatively affect your credit report while a strong on-time payment record helps it.

Another big factor in your credit score is utilization – or the amount of available credit you are using. The amount of debt you carry accounts for 30 percent of your score but this overall amount is weighed against the amount of credit extended to you. For example, if the total of your credit card limits is $10,000 and you have $5,000 in existing balances, your credit card utilization is 50 percent.

As a general rule, you should keep your utilization below 20 percent. This is considered excellent, and keeping your utilization low will help you to supercharge your credit score ahead of a big purchase such as a home or car. Here are some tips that can help keep utilization low:

Pay It Down

The simplest and best way to lower utilization is to simply pay down your cards. Your priority should be to get rid of your debt as fast as you can. It may be advantageous to transfer some savings to this pay down. You could also consider taking out a personal loan, which would help you consolidate high interest rate credit card debt into a lower interest installment loan.

Raise Your Limits

Another way to lower utilization is to create more “head room” on your accounts by getting your credit limits raised. How do you do this? Ask! According to a Bankrate report, a full 78 percent of U.S. credit cardholders who have asked for a higher credit limit have been approved. However, just 28 percent of cardholders have asked. Call your credit card issuers, point out what a great customer you’ve been and ask for a credit limit increase.

Spread It Around

Not only is it important to get your overall utilization number down, it’s also good to reduce it for each individual credit account. So, don’t load up one card to 70 percent of the limit while leaving another with a zero balance. Spread the debt around, assuming interest rates and other terms are equal.

At Travis Credit Union, we offer low-rate credit cards that can help you flex your financial power. You can apply online for a Platinum Visa.

Platinum Visa FICO® Score