Lower Your Credit Utilization Ratio

Credit utilization ratios look at how much credit you use opposed to how much credit you have available to you on all credit cards. If you are using too much of your available credit limit, your credit score can be negatively affected. Ideally, the credit utilization ratio should be below 10%. However, many financial advisers will say below 30% is fine. Therefore, if you have a $3,000 credit limit on all your credit cards, you cannot spend more than $1,000 per month if you want the credit utilization ratio to be below 30% and no more that $300 if you want the credit utilization ratio to be below 10%.

Opening more cards could be a solution as your available credit would go up and, therefore, your credit utilization ratio would go down. If you do not want to open any more cards as having the inquiry for the application for credit will appear on your credit report for 2 years and will also negatively affect your credit score, there are other solutions. It's simple. Pay your credit card twice a month to lower this ratio. If you have a total credit limit of $3,000, but constantly make around $600 in purchases per month, pay $300 of your credit card charges before a statement is created to lower the statement balance to $300, making your credit utilization ratio 10%. Credit Karma has an estimator to see what your score would be if you made any changes. See what happens when you lower your credit card balance. Remember that your statement amount is your credit card balance weather you pay it off each month or not.