This 1 Simple Trick Helps Me Keep My Credit Utilization Below 10%
by Christy Bieber | Updated July 21, 2021 - First published on May 24, 2021
It's a trick just about anyone can try.
Did you know that if you charge too much on your credit cards, you could hurt your credit score? And it doesn't take a whole lot of charges to do damage.
See, credit utilization is one of the key components of your credit score. It's calculated by dividing the amount of credit used by the total amount of credit available. A credit utilization ratio above 30% could do serious damage to your score. But if you really want the best chance of earning good or excellent credit, it's best to aim for an even lower ratio.
Unfortunately, you can't control when your credit card company reports the card's balance to the credit reporting agencies. And that's a factor that could keep you from achieving a low credit utilization ratio.
Even if you pay off your balance in full each month, your credit card company might still report that you've charged hundreds or even thousands of dollars on your card -- and that could mess with your ratio and lower your credit score.
Despite this potential problem, it's possible to keep your credit utilization ratio consistently below 10% even when charging just about every purchase on a card in order to maximize rewards.
The secret is to request credit line increases.
Credit line increases have helped me build credit
I've been able to ensure my credit utilization ratio stays below 10% by requesting credit line increases every single time they become available to me.
When you have a credit card, you can periodically request an increase to your current credit limit -- often without having to undergo another credit check.
I repeatedly ask for credit line increases whenever possible. Because I do, I've managed to get to a point where I now have two credit cards with limits that are well over $75,000.
When used responsibly, this high amount of credit is worthwhile. With so much available credit, it's almost impossible for me to have a credit balance that goes over my 10% utilization ratio. And since my ratio is so low almost every month, it doesn't matter when the credit card companies report my balance.
This works for me because I live on a budget and make sure I never charge more than I can afford to pay off in full. That way, there's no risk of having so much credit available.
This technique may not be the right choice for you if you tend to max out your credit cards. After all, making so much credit available to you could just leave you with a lot more to pay off. And credit card debt can be really damaging to your financial situation.
But if you can use credit responsibly as a tool, then asking for credit line increases regularly could be one of the best credit-building moves you make.
For more information, check out our guide on how to increase your credit score.
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