For securing funds, keeping the bare minimum limit on your credit card usage is crucial. And therefore, it is advisable to keep the credit Utilization Ratio within 30%. And if you are finding it hard to do so, you can target keeping the credit utilization ratio below 20%. In this way, you can surely maintain the bare minimum.

What is a Credit Utilization Ratio?

The credit utilization ratio undertakes every debt associated with credit cards, like best personal loans for bad credit, mortgage, or car loans.

What is the impact of the Credit Utilization Ratio on credit scores?

The Credit Utilization Ratio measures the proportion of total credit used to your total debt and is expressed in percentage. Your Credit Utilization Ratio of 23% means you are using 23% of your available credit. If you have over 1 credit card, it means you share different ratios and debt on credit cards, and this is the credit utilization ratio.

Individuals might have a high credit utilization ratio as they don’t pay in full for the items they purchase, and hence it does not affect their credit score much. At the same time, others have a fairly small Credit Utilization Ratio limit on their monthly spending.

For example, if you have a credit card limit of £1000 and spend £750, you spend nearly 75% of your credit limit for the month. Your credit utilization ratio will remain at 75%.

One technique of keeping and maintaining good credit is keeping your Credit Utilization Ratio (CUR) low on all your accounts and credit cards. It will reduce your overall Credit Utilization Ratio as well and will help you borrow more credit easily after you consume one.

It is, therefore, required you keep your emergency money loans for bad credit debt, pending down payment on mortgages, or car loans to minimal. Make regular and timely monthly repayments at the required interest rate. It helps keep the Credit Utilization Ratio (CUR) in good shape and creates credibility among creditors for borrowing funds further.

Major parameters affecting your Credit Utilization Ratio are:

  • Payment history (35%)
  • The credit age (15%)
  • Level of debt (30%)
  • The mix of credit (10%)
  • New Credit (10%)

Thus, no wonder why you must pay off all your debts timely and maintain a positive payment history for securing loans easily.

What are some tested strategies to Lower your Credit Utilization Ratio?

When it comes to maintaining a good credit score and gaining credibility in the eyes of creditors for your Christmas loans no credit check, it is crucial to keep your Credit Utilization Ratio low. Most individuals wish to do so but find it highly challenging. Here is how one can ensure a low Credit Utilization Ratio:

a) Request a credit card limit increase

Yes, you can do so, but if you have paid all the liabilities or payments in full. Increasing your credit limit is easy when you pay the balance in full and boost your credit utilization ratio. It is essential to maintain an expenditure discipline and spend only what you can afford to pay each month. Failure to maintain the CUR can pose credit troubles for you.

b) Make payment before the statement

To prevent Credit Utilization Ratio decline, pay the amount a week before getting the statement. Pay the total amount shown as the current balance a week before. Then, you will be left with only the payments of previous months or the last week of the month on the statement. In this way, you can secure a lower Credit Utilization Ratio and a high credit score.

c) Open a balance transfer credit card

Multiple debts on different credit cards can negatively affect your credit utilization ratio. One solution to cater to this challenge is a Balance Transfer Credit Card. In this, you can transfer all your debts to a single credit card and manage payments on multiple credit cards through a single card. It will help decrease the Credit Utilization Ratio and improve your credit score as well.

Moreover, these cards help you open an account interest-free with 0% APR for 15 to 21 months. If you open a new line of credit, it increases your credit utilization limit and thus lowers your Credit Utilization Ratio. Be mindful of not making extravagant purchases. Hence, it could affect the same.

What Impact Will Lowering My Credit Utilization Ratio From 75% To 50% Have on My Credit Score?

It is essential to keep your Credit Utilization Ratio below 30% for gaining funds for the best personal loans for bad credit or other loans. When your credit report witnesses a jump in your credit utilization ratio of 75 to 50%, it automatically makes you reliable to the creditor. 

Lower credit utilization suggests that you handle your finances and maintain your credit well. In opposed to this, having a high Credit Utilization Ratio may hurt your credit score.

If you have a high CUR, then it may imbalance the ratio of total credit to total debt and, hence affect your potential to borrow a sum. Lenders find this situation highly unreliable. And it is the primary reason individuals find it hard to secure a loan. 

How is the Credit Utilization Ratio Calculated?

Total debt and total credit limit are the two parameters that help you calculate the Credit Utilization Ratio.

Here is how you can calculate the Credit Utilization ratio:

Step 1- Add up your revolving cash balance

A revolving cash balance is an amount you do not pay on the deadline in total, and it carries over to the next month. Calculate the pending payments or cash balances first on all credit cards.

Step 2- Sum-up credit limits on all your credit cards

Every credit card comes with a credit limit. For example, you can spend only £1000 monthly on a credit card. Calculate the credit limit on each credit card and add them up.

Step 3- Divide the total balance with the total credit limit

Once you calculate the revolving cash balance and credit limit, divide the total balance with the total credit limit.

Step 4- Multiply the number received by 100

After dividing the digits, multiply the number received by 100. You will get your credit utilization ratio.

For example,

If an individual has 2 credit cards

Card 1 : Credit line 10000 , balance 2500

Card 2 :  Credit Line 8000, balance 4000

Total revolving credit = 10000 + 8000 = 18000

Total credit used = 2500 + 4000 = 6500

Credit Utilization Ratio = 18000/ 6500 *100= 36%

So, in this way, you can calculate Credit Utilization Ratio. As mentioned above, it is essential to continue your Credit Utilization Ratio within 30%. And in the example listed above, it is high. Thus, take responsible measures to lower your Credit Utilization Ratio and keep it to a bare minimum. 

Having a lower Credit Utilization Rate means lower debts and other liabilities like emergency money loans on bad credit.

Does Cancelling All Your Credit Cards Affect Credit Score?

No, cancelling a credit card does not affect your credit score if you pay credit card balances timely. Closing a credit card won’t affect your credit history as well. Although, it is best to keep the unused credit cards running to benefit from flexible credit available.

Some credit card agencies reward individuals for keeping Credit Utilization Low or using only a small portion of the credit.

If you stop using credit cards altogether, your credit score could be over 15%. It will only harm your long credit standing.

Therefore, it is advisable to keep the credit cards running. Credit history remains on your credit card for nearly 10 years, even if you close them. Therefore, it is better not to cancel the credit cards.

Bottom Line

As you can see from the above-written points, Credit Utilization Ratio (CUR) is a critical aspect for borrowing the desired amount with no issues and establishing a reliable image for a creditor to lend money without multiple credit checks. Apart from that, reducing your credit utilization ratio is an excellent way to boost your total credit score. Just maintain a good payment backup with avoiding unnecessary debts. Once you pay off debt, you can witness a drastic drop in your Credit Utilization Ratio (CUR).

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