November 14, 2023
We know that just hearing the words credit utilization ratio can hike up those financial stress levels and make you want to crawl back under the covers. Holing up in the safety and comfort of your warm fluffy blankets, instead of facing your credit score head-on. But taking meaningful, intentional steps toward financial freedom is so much more empowering.
We recommend setting a goal to use no more than 30% of your total available credit. Anything higher can negatively impact your credit score and overall financial health.
Good thing, lowering your credit utilization doesn’t have to be challenging. It also doesn’t mean you need to cut your spending. (In fact, it can be as simple as making multiple payments throughout the month, instead of just one when your statement is due!)
We’re walking you through five quick and actionable tips to lower your credit utilization ratio. So you can hit that below 30% mark.
Ready to unlock the benefits of a healthier credit score while still enjoying the lifestyle you deserve?
Yep, we thought so. Let’s dig in!
Your overall credit utilization is the amount of credit you’re using (aka the balances on those cards) compared to your credit limit (the total amount of credit available to you).
Think of it like this—
Sarah’s got an AMEX with a $10,000 credit limit. She’s working on paying off a course she invested in so she’s currently holding a $5,000.00 balance on her credit card. She’s using half of the credit available to her. Which means her credit ratio is 50%.
Many credit utilization trackers tell you to keep your utilization below 30%. In fact, being above 30% can be a big bold bright red flag and tank your credit score.
Our girl Sarah has got some work to do. Good thing she’s read up on her stuff and is ready to take action to lower it.
Maybe you’re well versed in what yours is, or maybe you nod your head along when asked about it without really understanding what it all means.
Your credit score is a 3-digit number that represents your creditworthiness. Your score can range from 300 to 850 and is categorized on a scale from Poor (300-579) to Excellent (800-850).
The lower your score, the harder it is to get approved for things like a mortgage, lease, or car loan. The higher your credit score the better your financial opportunities.
Wherever your score stands now, you have the power to take action to change it. One great way to boost your score—
Lowering your credit utilization.
A higher credit card balance means a higher credit utilization.
One of the best ways to lower your credit utilization is paying off those cards. Your credit limit doesn’t change, but your balance decreases, and your credit utilization ratio goes way down.
Paying your balance in full each month will help you avoid late fees and interest, and will keep credit card debt from running away from you.
But we know that sometimes paying off your card in full isn’t the most feasible option. Especially when it comes to higher balances.
Our advice is to pay down cards with the highest interest rates or the lowest credit limits first. Prioritize chipping away at these cards and you’ll make a significant dent in your overall credit utilization.
While increasing your credit limit is ultimately up to your card issuer, it is in your power to request an increase.
If your credit card issuer offers credit limit increases, consider requesting one. This can instantly lower your credit utilization ratio without affecting your spending.
In rare cases, your card issuer may automatically increase your limit. Rewarding your spending and responsible payment history. They may also do so if your income has recently increased. But why wait around when you can take action now.
Experian recommends two ways to do this—
In-App or Online. You can request an increase within the card issuer app or online. Fill out the form or hit up the chat feature and request your increase.
Call Your Card Issuer. Yes, we all hate picking up the phone, but most card issuers make this process fairly painless. Have answers ready on why you’re asking for more credit, what your current income is, and any housing expenses.
Then make that phone call.
You may be rewarded with instant approval or it might take a couple of weeks to process. Either way, requesting a credit increase is one of the fastest ways to decrease your credit utilization, without having to adjust your spending.
This is one of our favorite ways to lower credit utilization!
We know why it’s important to pay off your credit card balances. But turns out, how you pay off your balance can have a huge impact on your credit score.
Making multiple payments per month—rather than one lump sum at the end—spreads out your credit card activity and further lowers your credit utilization.
Those looking to increase their credit score should pay their credit cards off in full every week, versus monthly, to drastically reduce credit utilization. This practice of multiple payments has resulted in a 20-point credit score increase on average—in just one week!” —Vrinda Gupta, Sequin CEO
If you pay off your cards in full every week, you're consistently reducing your credit card balances. This means that the balance reported to the credit bureaus is also lower. And that your credit utilization ratio remains low throughout the month.
Consider paying off your cards in full every week instead of waiting until the due date. It’s a simple practice with HUGE financial rewards!
Let’s talk balance transfers.
When done right, they can be a great move to manage your credit utilization. It involves transferring the existing balance from one credit card to another. And is typically done to move high-interest debt to a card with a lower interest rate.
Credit scoring models take into account both your individual card utilization and your overall credit utilization.
When you transfer a credit card balance, you’re decreasing the balance on that original card and freeing up space. Immediately decreasing credit utilization for that card.
This one is super important. Both for your own personal spending and to spot any fraudulent activity.
Regularly monitoring your credit card activity helps you—
Prevent overspending. Keeping your eye on your current credit card balance can help prevent excessive spending. When you know how much you've already charged to your card, you're less likely to make impulsive purchases.
Avoid late fees and compounding interest by scheduling on-time payments. Making multiple payments on your card throughout the month can help you decrease your credit utilization. So schedule them in.
Track your credit limits. Checking on your card activity regularly makes you fully aware of your credit limits. It also allows you to keep the credit utilization of each individual card low.
Identifying Unauthorized Charges. Regularly monitoring your cards allows you to detect any unauthorized or fraudulent charges as soon as they arise.
Two of the most direct benefits of lowering your credit utilization are a higher credit score and lower interest rates. Understanding why and how this works is crucial for your financial success. Oh hey, higher credit score—
Positive Payment History. This plays a huge role when it comes to your credit score. Maintaining a low credit utilization ratio shows you’re responsible with your credit.
Boosted Creditworthiness. As your credit utilization decreases, your creditworthiness improves. A higher score opens the door to more financial opportunities, better terms, and lower costs.
Round of applause for lower interest rates—
Reduced Credit Risk. When your overall credit utilization is low, you're perceived as having a lower credit risk and will have better access to loans and credit at lower interest rates.
Cost Savings. A lower interest rate means you’ll pay less in interest charges on your credit card balances. You can do a lot with the money saved on interest.
Negotiating Power. With a healthier credit score, you have better negotiating power with lenders when talking loans.
Add the five tips above to your toolkit, and watch your overall credit utilization decrease and credit score soar. Mastering your credit utilization doesn’t mean sacrificing your lifestyle or spending. It’s all about smart, empowering choices that put you in the financial driver’s seat.
But remember, the road to financial empowerment doesn’t have to be a solo one. Join the Sequin Membership and supercharge your progress. As a Sequin member, you'll access not only a personalized Sequin Rewards Visa® Debit Card but also a high-interest checking account and access to expert-led education and resources.
With Sequin by your side, you can take control of your financial future with confidence.
Opinions expressed here are author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities. The content on this page is accurate as of the posting date however since then some of the offers may have expired. Please see the bank's website for the most current credit card offers.