Control your credit utilization limit for better scores

Credit utilization limit is the percentage of the total available credit that a borrower consumes. The credit bureaus refer to this component while determining the borrower’s credit scores. If the utilization limit is high, it indicates that the borrower could be overspending, and exceeding this limit could impact the credit scores adversely. In fact, the mantra is ‘lower the credit utilization limit, the better it is for the credit score’.

If the borrower has maintained a good credit limit over the years and never exceeded the 35% limit, then the overall credit profile would generally be in a good condition. Under these circumstances if in any month the borrower exceeds the utilization limit in a particular month, then it is unlikely that the credit scores will dip drastically. Also, the borrower must make sure that the limit is again kept to a minimal the following month.  

Tips to improve credit utilization limit

• -          Keep a tab on spending habits: This is the simplest way to avoid losing credit score points. If the borrower is approaching the 35% limit on one card, he must immediately switch to another card to make purchases.
• -          Seek higher credit limits: If the borrower has been good with spend habits, then there are high chances that the lending company could raise the credit utilization limit.
• -          Become an authorised user on an established account: It is a wonderful option if someone with an established account, good payment history, and excellent credit scores agrees to add the borrower as an authorised user. The higher overall credit limit could keep the borrower’s credit utilization limit lower than before. Secondly, this is completely safe from the established account holder’s point of view since there is no need to share the account number or other essential details.
• -          Get technically sound: Technology is meant to aid human beings and there is no point in remembering payment due dates when the task can be easily done by alerts. Setting up payment reminder alerts or putting bills on auto payment mode helps the borrower to pay the dues on time. This way the individual never misses his payment dates and the credit scores keep brimming.
• -      Get to know when issuers report to bureaus: Generally, credit card issuers report a customer’s balance every 30 days to the bureaus which may not necessarily coincide with the bill due date. And if the issuer reports to the bureaus before the bill due date it may consistently look like the customer is carrying a high balance. Hence, it is important to find out when the credit card issuers report to the credit bureaus and pay before the due date.

So try following these tips to keep the credit utilization limit to a minimal.