Having a low credit utilization ratio is an important part of your credit score. This ratio tells people what percentage of your total available credit line you have used. Different credit bureaus factor your credit utilization ratio into their algorithm differently, but the ratio affects your credit score number.
You want to keep your ratio low, ideally below 30%. If you need to lower your credit utilization in order to get a higher score to apply for business financing, there are some strategies you can take advantage of to get that number to be low. In this article we will discuss five ways to low your credit utilization ratio.
Schedule Your Payments More Often
Consider paying off your outstanding debts such as business credit card bills more than once a month. One way you can do this is buy having your bills on autopay, so you never miss a payment. For the months when your spending is higher than usual, nip that total in the bud so you are not carrying such a high balance the entire month.
Transfer Balances to 0% APR Credit Cards
If you are carrying a balance on your credit cards, your interest means more money. The interest adds up and increases your credit utilization ratio. This actually harms you two ways. Not only does your balance end up costing you cash, but it also might end up costing you a higher credit score. You can consider applying for credit cards that have 0% intro APR. this means you can carry a balance on your card without paying anything extra for a predetermined period.
By transferring some or all of your balances to a new card, you can lower your overall average credit utilization across cards.
Keep Your Cards Open
If you have a credit card laying around that you do not use, consider keeping it open. It can help your credit utilization ratio.
The available credit line on all of the credit cards in your name comprises the total amount of credit you have to available to use. If you close a card, that total amount goes down. That means even if you don’t change your spending, your ratio goes up
Additionally, having a hard pull on your credit can affect your score. If you have too many hard pulls can you lower your credit score and if you get rejected when applying for a line of credit, it can also bring your score down.
Know When Your Lenders Report to the Credit Bureaus
You will make big purchases and credit cards are helpful for that. If you are spending a lot, having a sense of when lenders report to the credit bureaus will enable you to be strategic.
With this date, you can schedule payments before they report, or not make those big purchases right before your score is reported. Both of these can lower the ratio that your credit bureaus receive. You can simply ask your creditors to find out the date.
Get a Better Handle on Your Spending
The best thing you can do to lower your credit utilization ratio is to have a sense of the details of your financial life. Knowing when your lenders report is one piece, but the other is simply understanding what your credit limit is and knowing how close you are to it with each purchase you make. The best thing about this piece of your credit score is that you have control over it.