Welcome back to part 2 of Understanding Your Credit Score. In part one, we discussed Payment history as being the number one contributor to your credit score, at 35%. Another crucial component to achieving a top credit score is Credit Utilization. According to Bankrate.com, 51% of Americans believe having accounts with high balances will help their credit score if payments are made on time. However, that is not the case.
Maintaining good credit utilization is 30% of your credit score. Credit bureaus base credit utilization on the balances owed on your revolving lines compared to their credit limits. Many experts would agree that keeping your utilization below 30% of the credit limit will help to maintain a good credit score. According to FICO, top credit score holders keep their utilization between 7-10%. This not only applies to an individual card or credit line but the overall utilization total.
For some individuals using a credit card for daily purchases to gain rewards is beneficial. These individuals pay their balances in full every month, eliminating paying the interest. However, when the credit company reports the payment and balances to the credit bureaus, depending on the credit limit, it can show a high utilization. Here are three ways to help keep your utilization low.
- Making weekly or biweekly payments to your credit card or line of credit can help to keep your utilization low.
- Request a credit line increase, an increased credit limit can help lower the utilization ratio. When asking for a credit increase, be aware of your score. If your score has dropped since you applied, they may lower your credit limit.
- Ask Questions. When does the credit company report to the credit bureau? Paying your balance down before being reported can help to increase your credit score by reporting a lower credit utilization.
Credit utilization is the largest influence in a fluctuating credit score and is, therefore, an important part of maintaining a top credit score. If you are looking for ways to increase your credit score, please contact Carrielyn Reynolds at Creynolds@newdimensionfcu.com or (207) 872-2771.
Stay tuned for next month’s article, Part 3 of Understanding your credit score: Mix of Credit, Credit History, and Credit Inquiries.