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Optimize Your Credit Utilization Ratio with O1ne Mortgage

At O1ne Mortgage, we understand the importance of maintaining a healthy credit score. One of the key factors that influence your credit score is your credit utilization ratio. In this article, we will explore what credit utilization is, why it matters, and how you can optimize it to improve your credit score. For personalized mortgage services, call us at 213-732-3074.

What is Credit Utilization?

Your credit utilization ratio, also known as the utilization rate, is the percentage of available credit you’re using on your revolving credit accounts, such as credit cards. A lower credit utilization ratio is better for your credit scores, but a little utilization is better than none at all. Ideally, the best revolving credit utilization ratio may be around 1%. However, you don’t need a 1% utilization ratio to have an exceptional credit score. Keeping your utilization in the low single digits could be good enough.

How Much Credit Should I Use?

If you’re focused on having excellent credit scores, a credit utilization ratio in the single digits is best. For example, if your credit limits across all of your credit cards add up to $10,000, keeping your total credit card usage under $1,000 will be best for your scores. If you need to occasionally use more credit to cover your bills or pay for an emergency, that’s not necessarily bad for your credit in the long run—as long as you pay down the balance as quickly as possible.

How to Lower Your Credit Utilization Rate

Your credit utilization ratio is calculated using your credit limits and current balances, which means you can lower your utilization ratio by increasing your available credit or lowering your reported balance. Here are some strategies to help you achieve this:

Pay Off Credit Card Balances

If you’re carrying a balance, make an extra effort to pay off your credit card debt. You may also want to stop using your credit cards to limit how much new debt you add to your card’s balance.

Request a Credit Limit Increase

You can ask your card issuer to increase your credit limit. Card issuers don’t have to say yes, and likely won’t if you just opened your card or haven’t managed your account responsibly. But it’s worth asking, particularly if you haven’t missed any payments, usually pay more than the minimum due, and won’t take advantage of the increase by running up your balance. Also, update your income information whenever it rises: Card issuers may proactively raise your credit limit as your income increases, or may be more likely to say yes if you request a credit limit increase.

Open a New Credit Card

Opening a new credit card can also increase your total available credit. That might not be a good enough reason to open a new card, and opening a new card could impact your credit scores in several ways. However, having a few cards can make it easier to maintain a low utilization ratio than if you have only one.

Keep Your Credit Cards Open

Even if you’ve stopped using a credit card, keeping the card open increases the amount of available credit you have, which can contribute to a lower utilization ratio. If the card has an annual fee, it might not be worth keeping unless you benefit from the card in other ways. But rather than closing your account, you could call the issuer and ask if you can change to another card the issuer offers without an annual fee.

Use a Loan to Consolidate Credit Card Debt

Credit utilization ratios only consider the balances and limits on revolving credit accounts—credit cards and lines of credit. If you use a personal loan to pay down credit card balances, you’re moving the debt from a revolving account to an installment account. The primary motivation for consolidating credit card debt is to lower your interest rate or monthly payment. But now you know why consolidating credit card debt could also help your credit scores.

Check and Monitor Your Credit and Utilization

You can calculate your credit utilization by comparing the current balances and credit limits for revolving accounts on your credit report. Additionally, when you check your credit report with Experian (which you can do for free), your credit utilization ratio will automatically be calculated and displayed. You can also look at each of your accounts to see their current individual utilization ratio. Both overall utilization and individual account utilization are considered in your credit score calculation.

At O1ne Mortgage, we are committed to helping you achieve your financial goals. Whether you need advice on managing your credit utilization or are looking for the best mortgage options, our team of experts is here to assist you. Call us today at 213-732-3074 for personalized mortgage services.

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