The average annual percentage rate of credit cards in the U.S. falls between 15% to 23%.
However, credit card debt can quickly get out of hand if not managed properly. Small expenses can add up to high credit utilization rates, which negatively affect your credit score.
Your credit utilization depends on your current balance and your credit limit. Banks use these figures to calculate how much of your credit limit you are utilizing.
The lower this percentage is, the more likely you are to get approved for loans. A low credit utilization indicates that you’re responsible with credit.
With FICO scoring models, your credit utilization is responsible for 30% of your credit score. Therefore, using your credit card less can increase your credit score.
According to the experts, the ideal credit utilization rate is 30% or less, while the debt-to-limit ratio should be as close to 0% as possible.
How To Reduce Credit Utilization:
Most people struggle with reducing their credit utilization. This is because most of the time, they don’t have the money required to pay off their credit card debt.
Here are a few tips that can help you reduce your credit utilization in a short time:
Pay Your Credit Card Bills On Time:
Most credit card companies provide a report of your credit card balances to credit bureaus once the statement closing date passes. The credit bureaus use the statement balance to calculate what your credit utilization percentage is.
But since card users may have different reporting dates, the card company will just send the balance that you have on any given date.
To make your credit utilization seem smaller, it’s essential to pay off your credit card payments in small, more frequent increments. By paying constantly, you’ll be able to maintain a low credit utilization.
Request An Increase For Your Credit Limit:
You may be able to ask for a higher credit limit if you’ve had your credit card for six months to a year and have been consistent in paying the bill on time.
If your income has increased since you got the card, you are more likely to get an increased credit limit, so you should continually update your card company with your income.
A higher credit limit will give you more credit to spend, effectively reducing your credit utilization.
If you are looking for ways to improve your credit score, credit utilization is the one factor you really need to focus on.
With Oak Credit Repair’s credit repair consultants in the US, you can get expert advice and practical help to repair your credit quickly. Get in touch to learn more.