Overview
Your credit utilization ratio is the percentage of total available credit that you’re using. For example, if your total available credit is $5,000 and you’ve spent $500, your credit utilization ratio is 10%.
It’s a good idea to keep your credit utilization below 30% at all times, as a lower credit utilization ratio may positively impact your credit score.
Sometimes, higher expenses are out of our control. If you need help covering immediate expenses, apply for a personal loan via OntarioCASH.
In this article, we will review five smart tips to lower your credit utilization ratio, despite the challenging state of the economy.
Tip #1: Request a Credit Limit Increase, but Don’t Increase Your Spending
Check if you are eligible for a credit limit increase. If you are, it is usually just a matter of a phone call to request the credit limit increase. Once your limit is increased, make sure you keep your spending the same or lower. This will allow you to lower your credit utilization ratio. For example, if your credit limit goes from $4,000 to $8,000, then $400 will go from 10% of your credit limit to 5% of your credit limit, which is a significant decrease.
Tip #2: Avoid Lifestyle Inflation
Lifestyle inflation is a term commonly used to describe the increase in spending that often accompanies an increase in income. Lifestyle inflation can prevent you from taking full advantage of your increased income. Therefore, it’s important to keep your spending as low as possible despite a potential increase in your income. This may allow you to take full advantage of your improved income.
Tip #3: Pay More Than the Minimum Balance
Another way potentially to lower your credit utilization ratio is to pay more than the required minimum on your credit card(s). Only making the minimum payments can have an adverse effect on your credit utilization ratio and credit score and may result in accumulated debt. Therefore, the best strategy is always to pay as much as you can toward your credit card(s), to avoid the charges and fees that may result from missed or late payments and limit the accrual of debt over time.
Tip #4: Review Your Expenses
Another useful thing you can do is review your typical monthly expenses. Identify any areas where you might be overspending without a visible benefit e.g. buying a coffee at large coffee chains, dining out too often, buying new clothes too often, or buying new gadgets you cannot really afford. List those expenses and make different choices. For example, brew your own coffee at home, cook your own meals at home, and hold off on purchasing new clothes/gadgets.
Tip #5: Make Micro Credit Card Payments Throughout the Billing Cycle
If you’re waiting until the end of the month to pay off your entire balance, you might want to consider a new strategy. That is, make payments on your credit card(s) throughout the month. This may allow you to keep your credit card balances low, instead of accruing a large balance. A larger balance will result in a higher credit utilization ratio, which may negatively impact your credit score.
Final Thoughts
The above five strategies may help you achieve a lower credit utilization ratio, which may positively impact your credit score. However, they require long-term persistence and are not a quick fix.
A high cost of living and the general state of the economy can make it difficult to keep up. If you need quick funds, apply for a personal loan online via OntarioCASH. We don’t check credit scores or credit reports during the simple and quick online application process.
