Credit cards have become a significant instrument to maintain our financial well-being. In fact, credit cards support to build your credit scores. However, there’s one thing that you need to look at while using these cards and it is the credit utilization limit. Yes, you read it right. How you make use of your credit limit has a huge influence on your overall scores and thus, you need to keep a check on it.
Credit utilization percentage is calculated on the basis of your available limit and used limit. In simple words, it is about how much you owe currently. For instance, you have a credit limit of Rs.100000 on your card and you’ve an outstanding due of Rs.25000, then your credit utilization percentage will be 25%. Therefore, being one of the most influential factors of credit scores, it is advised to keep the ratio below 30%.
Tips to improve your credit utilization:
So, if you’re looking for measures to improve your overall credit utilization in order to keep the scores in good range, here are few tips that you need to check on.
Keep a track :- While signing to the credit cards, the first thing you need to assure is keeping a track of its usage. In fact, it is the simplest way to avoid losing points on your credit score for higher credit utilization of your limits. Make a habit to check the statement every now and then, or at least once in a month. This will help you keep a tab on your spending habits, while avoiding any unnecessary expenses. If you’re close to exceeding 30% of your available limit, try avoiding any further purchases or switch to another card until the outstanding due is paid off.
Applicable fees and charges :- While checking the monthly statements, it is also essential to pay attention to the additional charges as it directly affects your overall utilization of credit limit. For instance, you are carrying an outstanding balance from the previous month’s statement, then the card issuer will charge the interest charges on the outstanding due from the previous month. The interest charges will be directly levied from the available credit limit, thus, directly hitting your credit utilization ratio.
Request for higher limits :- Credit cards definitely come handy at times of financial emergency. So, if you feel that it’s tough for you to keep your credit utilization below 30%, then it is advised to request for higher limits on your credit card. There are several card issuers who temporarily provide higher credit limits to their cardholders at times of crisis such as managing wedding expenses or medical emergency. However, to avail the facility, it is essential to maintain good repayment record with the card issuers, so that the company can trust you while considering your request to revise the credit limit. Notably, a higher limit could help you keep your credit utilization percentage lower than it would be otherwise, thus making a huge difference in credit scores.
Set balance alerts :- If you’re really concerned about keeping yourself credit healthy, then it’s best to make use of the advanced technology to the fullest. Sign in to the mobile banking and set a balance alert, so that after reaching the specified limit, you’ll be alerted to avoid any further purchases. Even if you skip the alerts, any additional purchases beyond the specified limit will be declined on your card. Therefore, you can keep your credit utilization ratio below 30% with ease.
Follow habit of paying twice :- Though most of us are in the habit of paying the credit card bills on or before the due date of every statement cycle, experts suggests to make a habit of making the credit card payments at least twice per statement cycle. Following this simple habit could help you keep your utilization ratio a little lower and thus, can save you from paying interest on the outstanding dues, while keeping your credit scores in good range.
Don’t close your credit cards :- The most common mistake that the cardholders often make is to close the unused credit cards. While the idea behind closing the cards is to avoid carrying unnecessary debt to their shoulders, the impact of the action is completely reverse. Closing the credit cards have a direct impact on your overall credit limit and thus, could hit your utilization ratio, even if the amount of outstanding dues is quite low. Therefore, instead of closing the credit cards, especially those one with higher limits, it is advised to keep it active and make purchase every now and then to avoid renewal and annual charges.
Keep an eye on credit bureaus :- When it comes to your financial health, it is important to understand what actions are taken at what time. Get in touch with your card issuers to know when your credit details are reported to the credit bureaus. Notably, most card issuers report to the credit bureaus at the end of every month, not necessarily to sync with your due date. If credit bureaus are reported just a few days before your credit card billing cycle, then it will consistently look like you’re carrying outstanding balance every month, ultimately hitting your credit scores. Therefore, it is significant to know when your credits are reported to the credit bureaus in order to manage your finances accordingly.