Credit card debt can be an expensive burden to carry. Consider the average annual percentage rate – the interest rate, plus any fees – of credit cards in the U.S. News database, which ranges from about 15% to 23%.
But credit card debt can cause serious problems beyond money wasted on interest charges. If your cards have high credit utilization rates, this could hurt your credit score – even if you make all of your payments on time.
What Is Credit Utilization and Why Does It Matter?
Your credit utilization rate takes two figures, your credit limit and your current balance, to calculate the percentage of how much of your credit limit you are using.
For example, if you have a credit card account with a $10,000 limit and a $5,000 balance on the card, your credit utilization rate is 50%.
The lower your credit utilization, the more attractive you are to lenders. “A low credit utilization illustrates to lenders that you’re responsible with your credit,” says Leslie Tayne, debt resolution attorney and founder and managing director of Tayne Law Group. “A high credit utilization can hurt your credit score.”
Credit scoring models such as FICO and VantageScore analyze your debt-to-limit ratio when calculating your credit score. With FICO scoring models, credit utilization accounts for 30% of your credit score. So, when you lower your credit card utilization, your credit score might increase.
What Is a Good Credit Card Utilization Rate?
If you want to earn and keep good credit scores, it helps to know what scoring models consider a good credit card utilization rate. The answer to the question, however, depends on the credit scoring model that’s being used and your goals.
VantageScore experts often advise maintaining a credit utilization rate of 30% or lower. Still, a debt-to-limit ratio that’s as close as possible to 0% is best.
Fair Isaac Corp., the creator of the FICO score, also recommends maintaining a low credit card utilization rate – the lower, the better. Are you aiming for an excellent FICO score? According to the company, consumers with scores between 800 and 850 have an average revolving utilization rate of 4% to 5%.
Chad Kusner, president of credit rehabilitation company Credit Repair Resources, provides a good rule of thumb to follow. You want to show that you’re using your credit cards, “but also keeping the lowest possible balance,” he says.
How Can I Lower My Credit Card Utilization?
There are several ways you can lower your credit card utilization rate.
1. Pay down your credit card balances. The simplest way to lower your utilization rate is to pay down your balances. That’s easier said than done.
The good news about paying down your credit cards is that you don’t have to reach 0% utilization before your credit score has a chance to improve. As you pay down your debt and lower your credit card utilization in increments, your score may start to increase little by little.
2. Learn your statement closing date. Another tip for lowering your credit card utilization is to learn your account’s statement closing date and pay your balance before then. “The balance we owe on the statement date is what’s reported to the credit reporting agencies,” says Kusner.
You might charge $5,000 on your credit card account throughout the month. But if you pay off that balance before the statement closing date, your credit report will show a zero balance. That’s a 0% credit utilization rate.
3. Don’t add to credit card balances. “Avoid spending more than you can pay off at the end of the month” if you’re trying to lower your credit card utilization, says Tayne.
Worried about temptation? Consider locking your credit card away in a safe place instead of carrying it in your wallet. You can also implement a 24-hour rule, taking 24 hours to think over unplanned purchases.
Just be careful not to close credit card accounts in an attempt to curb your spending habits. Closing a credit card will raise your overall credit utilization rate and might harm your credit score.
4. Ask for a credit limit increase. Increasing the gap between your credit card balance and your limit lowers your utilization rate. Aside from paying down your balance, the other way to gain distance between these two figures is with a credit limit increase.
Let’s say you have a credit card with a $10,000 limit and a $5,000 balance. Your credit utilization rate is 50%. If you increase your limit to $15,000, your utilization rate would fall to 33%, even though the balance remains the same.
Asking your credit card company for a limit increase can help you to keep your utilization rate within reason, Tayne says. A higher limit may prevent a hit to your credit score if you need to make a large purchase you can’t pay off immediately. But Tayne cautions consumers not to go overboard with their spending, even if a request for a higher credit limit is approved.
5. Become an authorized user. An out-of-the-box way to lower your overall credit card utilization requires a favor. If a friend or family member adds you on the right credit card as an authorized user, your credit score might benefit.
“You could have someone add you as an authorized user on a credit card account that has a low balance and a high limit and a great pay history,” says Kusner. “Now your aggregate or overall utilization will be lower.”
Of course, Kusner maintains that paying your credit cards on time is an essential element to earning a good credit score. He also encourages consumers to use credit cards responsibly and not charge more than they can afford.
How Much Will Lowering Credit Utilization Affect My Score?
In credit scoring, specific actions don’t have exact point values. Reducing your credit utilization rate by 10% won’t raise your credit score by 10 points (or any other guaranteed number, for that matter). That’s not how credit scoring works.
Everyone’s credit, Kusner says, has a unique DNA. The same action, like paying off a credit card, can influence individual credit scores differently. It depends on your profile how much lowering your credit card utilization rate has on your credit score.
If your utilization rate is already less than 30%, you might not see much of an improvement from paying off a credit card. But if you’ve been hovering at or near your credit limit, you should see a larger positive shift by improving your credit utilization.
You should expect at least some benefit to lowering your credit utilization, even though there’s no guarantee of how much you can improve your credit score. Remember, this factor is second only to payment history when it comes to calculating scores, so improving your credit utilization rate can make a big difference.
Lafayette business receives cease and desist order for lack of credit repair bond
LAFAYETTE, La. (KLFY) – A Better Business Bureau Serving Acadiana complaint and subsequent investigation led to the Louisiana Office of the Attorney General issuing a “cease and desist” order to Lafayette-based Virtuous Business Consulting and owner Jessica Chaisson.
The business was ordered to immediately stop performing credit repair services at their 1003 Louisiana Ave. location. Virtuous Business Consulting currently has an F rating with BBB.
The AG order settles allegations the business performed credit repair services without the required $100,000 surety bond as required by state law under the Louisiana Credit Repair Services Organizations Act. Under terms of the order, the business was required to immediately stop performing credit repair services as well as provide the names and contact information for anyone who used their credit repair service. The order was for settlement purposes only and should not be considered as an admission of guilt.
According to BBB records, the company received a complaint from a consumer, alleging the company accepted an advance fee for credit repair then never performed the service. The business did not respond to the consumer complaint.
BBB sent correspondence to the business on Nov. 4, 2020, requesting a brief description of the products or services offered, copies of marketing materials provided to their customers, copies of any service agreements provided to customers and a copy of the required surety bond but BBB didn’t received a response.
“Hearing from consumer experiences help us keep the public informed with situations such as these,” said Jillian Dickerson, BBB Serving Acadiana President and CEO.
According to the U.S. Credit Repair Organizations Act, “No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.”
When looking for credit repair services or debt relief, consider the following:
- Understand the difference between credit repair services and debt relief. Credit repair companies repair credit reports for a fee; debt relief are typically programs that offer loans to consolidate debt.
- Carefully research companies on BBB.org before agreeing to any services and make sure the company can help resolve the situation.
- Before signing any contract, read and understand the terms and conditions, especially if it involves a loan.
This 7-Figure Wealth Coach Has Helped Countless People Repair Their Credit During the Pandemic
Coach Legend, as he is known, has been helping people struggling financially during the pandemic increase their credit scores and gain greater financial freedom. He has largely done so with the help of Instagram and Facebook. Through his genuine and authentic approach to social media marketing, Coach Legend has been able to help countless people turn their lives around.
What makes Coach Legend someone people turn to receive advice from is his authentic approach. For him, forging personal relationships is more important than making money. While it is definitely a nice perk of what he does, he isn not motivated by it.
Coach Legend’s primary motivation is helping others. It just so happens that he is great at relating with people and motivating them to improve their lives.
These days, this wealth coach is focused on helping with credit repair. That is because the pandemic cleaned out the accounts of many in 2020. With non-essential businesses closing across the country, many had been furloughed, have seen their hours reduced, or were simply let go. This led to financial hardships for millions of people.
Those who sought to buy homes and cars, or wanted to start their own businesses, came up against financial barriers. With a low credit score, it becomes incredibly challenging to get any sort of decent loan. Thankfully, Coach Legend knows what steps need to be taken to improve financial situations and credit scores.
Thanks to his helpful advice, countless people have been able to improve their credit scores and financial situations. His clients have been able to get the houses and cars they wanted, and are able to enjoy the financial freedom they thought was beyond them.
Coach Legend knows all too well how limiting it can be to work for someone else or be dependent on someone else for your livelihood. That is why he explored becoming an entrepreneur. He saw other mentors of his unlock financial abundance and sovereignty by becoming their own bosses. That is what he decided to do after learning everything he needed to know. It wasn’t long before Coach Legend was operating several different businesses.
By taking the entrepreneurial path, he was able to say goodbye to hard times and limits on what he could achieve. Becoming financially literate was also instrumental in him accessing the abundance that was waiting for him. Coach Legend now enthusiastically teaches others how to gain financial freedom as well, given his extensive experience with the steps needed to take to unlock it.
Social media has been a tremendous resource for Coach Legend, who has audiences on Instagram, Facebook, and YouTube. There, he dispenses sage advice and extends an invitation to anyone who is looking to improve their financial situation to receive advice and guidance from him.
You can watch some of Coach Legend’s keen insights when it comes to success and mindset by heading over to his Instagram Page.
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