If you’re trying to pay off high credit card balances to lower your credit utilization and help repair your credit, you’re going to exhibit some self-control and attack things strategically.
The way we recommend lowering your credit utilization is with these five steps:
- Slow down your spending
- Pay down your balances
- Open another line of credit
- Ask for a credit line increase
- Don’t close any accounts
But before we dive in, let’s take a quick step back and remind ourselves why we should even worry about credit utilization in the first place.
Credit utilization—or, how much of your available credit you’ve currently spent at any given time — is the second most important credit factor when calculating your credit score.
In short, it matters—a lot.
So it’s critical to get to a point where your credit utilization is 30% or under— e.g., if you have a $10,000 line of credit with your bank, you don’t want your balance to exceed $3,000.
Figuring out your utilization rate
First thing first—do you actually know your credit utilization number?
If you don’t, no worries: you can easily calculate your score yourself.
All you have to do is divide all your available credit limits by your balances, and you’ll get the result in a decimal.
So if your total available credit is $10,000, and your balances add up to $3,450, your number will be 0.345. To get your percentage, you just multiply that number by 100
In this case, your credit utilization would be 34.5%, which is a little above the recommended ratio.
| Available Credit | Balances | Credit Utilization |
|---|---|---|
| $10,000 | $3,450 | 34.5% |
If you’d rather skip the math, there’s also a handy online calculator tool you can use here.
Just remember this number changes every time you make a payment or your credit limits are raised, so it is a relatively easy item to fix on your credit report. And because credit utilization is one of the biggest factors in your FICO score, paying down your credit cards could boost it significantly.
And unlike waiting for bad debt to fall off your report, this activity affects your score immediately. And there is more than one way to do it.
In fact, here are five.
Step 1: Slow your spending
If you can control your spending habits and create a budget, you should have a much firmer grasp on what you can and can’t afford each month.
If you’re making your payments and not increasing the amount you owe, your credit utilization rate will start to drop.
Step 2: Pay down your balances
If you can afford to pay down the balances on your account, this is obviously the best way to raise your credit utilization ratio. You don’t have to pay them off completely, but the more you can pay down, the more it will help your FICO score.
Creditors usually report credit activity at the end of each billing cycle, so if you’re trying to see a difference quickly, put a large chunk of money toward your balance early.
But be careful not to use your credit again before it’s reported—lenders only report your balance at the end of each cycle, not how much you spent or paid toward your bill.
Step 3: Open another line of credit
You can instantly increase your available credit by opening another account.
Just note that applying for a new loan or credit card will result in a hard inquiry, which will slightly ding your credit score. But the positive effect of the increased credit amount far outweighs it.
The best way to do this is to open a card with the highest credit limit you can qualify for. The same goes for a loan.
Of course, this is more difficult if you’re already maxed out, but it’s not impossible.
If you’ve gotten pre-screened offers in the mail, take another look at those. Or if you’re in good standing at your credit union, take out a low-interest personal loan.
If you’re able to take out a personal loan, it’s actually more advisable than opening another credit card.
For one thing, if you can get one with a low-interest rate, you can pay off some of your credit card debt. For another thing, if most of your debt is from credit cards, taking out a personal loan boosts your credit mix score on your report.
Step 4: Ask for a credit line increase
Asking your credit card company for a credit increase is another great way to boost your credit utilization score quickly.
And if you’ve been in good standing with them for a while, this is usually not too difficult to get them to do.
For example, with Chase you can apply for a credit increase online and get your results immediately:
Again, just note this can also result in a hard inquiry, so try not to request an increase from all your creditors at once. But if you can increase one or two at a time while paying the balances down early, you’ll start to see a significant leap in your credit score fairly soon.
If you go this route, be careful about overspending again. If you’re in a financial mess already, new lines of credit can seem like an easy way out, but do your best to avoid the temptation—maxing out yet another credit card will only add to the problem.
Step 5: Keep your accounts open
It may be tempting to close a credit card account once you’ve paid it off, but by doing so you are decreasing your available credit, thereby lowering your credit utilization score.
Closing an account has another negative consequence: a possible negative effect on your credit history length.
While not as important a factor as your credit utilization ratio, credit history still makes up 15% of your FICO score, and if you close an account, it will eventually fall off your credit report, again decreasing your available credit.
You can see on your credit report the date your account was opened up. In the example below, you can see this credit card account was opened up in 2008.
So be sure to keep your accounts and credit cards open, even if you’ve fully paid them off and never plan on using them again.
What’s next?
Now that you know how to keep your credit card utilization under the magic 30% number, it’s time to move on to the last step in your credit repair journey—how to work on building new credit to your name.
