4 Hacks to Reduce Your Credit Utilization and Improve Your Credit Score

Cutting your credit utilization is easier than you think.Image source: Getty Images.

Want to boost your credit score quickly? While most methods to improve your credit take months or longer to make much of a difference, there's one that can do the trick in a matter of weeks -- reducing your credit utilization.

Your credit utilization is how much total credit you have available compared to your balances, and it accounts for 30% of your FICO® Score. Since your credit card company reports your balances every month, a significant change in your credit utilization can have a big impact. In the case of my colleague Christy Bieber, a high utilization dropped her credit score by over 30 points.

The problem people run into is that it's hard to dramatically decrease your credit utilization in a month or less. After all, if you had the money to pay down your credit card balances, you'd probably just do that.

For that reason, here are four hacks that will help you reduce your credit utilization, even when you don't have the cash to pay off your credit cards.

1. Pay your credit card bill more frequently

Most credit card companies report your credit card balances to the credit bureaus after your statement closing date, which means they're sending over your statement balance. The credit bureaus then use this information to calculate your credit utilization. This isn't always the case, though, as some card issuers have different reporting dates and will send in whatever your balance is on that date.

A simple way to lower your utilization is to make smaller, more frequent credit card payments instead of one larger payment. By continually paying down your balance, you'll maintain a lower credit utilization.

Here's an example to demonstrate this -- let's say that you have a $2,000 credit limit, and you usually charge $1,000 per month to your credit card. You always pay in full, but the card issuer reports your statement balance of $1,000, giving you a credit utilization of 50% and hurting your credit score.

You decide to start paying off your card every time the balance reaches $250. At most, your reported balance will be $250, dropping your credit utilization to just 12.5%, which is excellent.

2. Ask for an increase to your credit limit

If you've consistently paid your credit card bill on time and you've had the card for at least six months to a year, then the card issuer may be willing to increase your credit limit. This is even more likely if you've increased your income since you got the card, so make sure that you keep your income updated with the card issuer.

Many card issuers let you request credit limit increases online through your account with them, but you can always call them and ask as well.

A higher credit limit will mean you have more available credit, which would lower your credit utilization.

3. Open a new credit card

When you open a new credit card, its credit limit will increase your total available credit, and as a result, your credit utilization will decrease.

This is a fairly easy hack, too, because all you need to do is find a card that you qualify for. It's even better if you can qualify for a balance transfer card with a 0% intro APR. Then you can transfer your credit card debt to that card and start whittling it down without paying more interest on it.

There are a couple caveats to this method, though. Although it will drop your credit utilization, it can also reduce your average credit account age, and the latter can lower your credit score. However, credit utilization is the more significant of the two scoring criteria.

A new credit card can also bring the temptation to spend more. You'll need to be careful not to do this, because then your credit utilization will go back up and you'll have more credit card debt than before.

4. Get a personal loan to pay off credit card debt

Besides balance transfer cards, personal loans are another popular way to consolidate credit card debt. Not only does this give you the opportunity to make one fixed payment on your debt per month and get a lower interest rate, but it can also raise your credit score.

All you need to do is get a loan, ideally for the full amount of credit card debt that you have, and then use that loan to pay off your credit cards. If you pay off all your credit card debt this way, it will bring your utilization down to 0%.

Again, make sure you don't start overspending just because you've paid off your credit card debt with a loan. Debt consolidation only works if you work hard on paying off your debt after you consolidate it.

Hacking your way to better credit

To raise your credit score quickly, there's nothing better to focus on than your credit utilization, and any of the hacks above will help you lower it.

Just remember that while these hacks may help your credit score, you still shouldn't get comfortable being in credit card debt. Besides improving your credit, you'll also need to put together a plan to pay off that debt and avoid it in the future.