Having a line of credit doesn't mean that you should use your full credit. Credit utilization accounts upto 30% of your credit score. As per the financial experts, you should use 35-40% of your available credit limit to maintain a healthy credit score. Here is what you can do to improve your credit utilization.
- Spend on what you need not on what you want. Eliminate luxuries masked as a necessity.
- Credit utilization is calculated on your every individual account as well as on your overall active accounts. If you already have multiple credit accounts then don’t make a mistake to close those accounts because at the end overall credit utilization will be the most important factor to calculate your credit score.
- Decide your ideal credit limit and ask your lender to raise your credit limit.
- Find out when your lender reports to the credit bureau and before that, you can pay off the debt which will decrease your credit utilization.
If you have a need to utilize more than 40% of available credit then you can split the borrowed amount in a bigger tenure because utilization ratio is calculated on a monthly basis. (eg: if the available credit limit is 50K and you have borrowed 45K, split it in a tenure of 12 months which will bring your credit utilization to 13%)