How To Lower Your Credit Card Utilization?



Credit card services are frequently used by the buyers and new credit cards are availed each minute. Over the past few years, the utilization ratio of credit cards has increased a lot. This has happened as the credit cards provide you reward points on making a purchase through credit card as compared to no reward when to pay by cash. Greed for more credit points push the users to use credit cards more frequently. It has been observed that overuse of credit cards has caused the credit score of the customer to lower and the risk or instances of late payment make this even worst. There is a need to lower this utilization by considering certain factors.

Ways To Lower Credit Card Utilization

There exists an ample number of ways that may help you to lower your credit card utilization to a certain limit. This will help you improve your credit score and also help you manage your finances well. Another benefit you will get is lesser chances of penalty in case the utilization has exceeded your monthly income. The ways in which steps can be taken to reduce credit card utilization are simple and effective and must be understood well to ensure that benefits are delivered to the doorstep.

Monitor Utilization Ratio

When you receive your credit card monthly statement figure out what your credit card limit is and what amount have you utilized. If you divide the monthly utilization with available credit card limit you will get to know your utilization ratio. It is generally suggested to keep your utilization ratio near 30 percent, as this will not only improve your credit score and will help you manage the monthly bill as well. No doubt credit card offers you a period of a month or two to pay your debts but if you over exceed your bills than your income it will become more difficult to pay even after two months.

Pay Balance Early

One of the best ways to reduce the credit card is to pay the balance much earlier than the last date as this will limit the use frequency and will also prevent you from penalties. The justification for this statement lies in the fact that the credit card companies report the credit associations about the balance of the user’s card on a certain date and if your bills are not paid yet then this will indicate the authorities to lower your credit score. Another possible solution can be to pay your balance twice a month or more frequently as this will lower your utilization ratio and also reduce the balance left the end of the billing period.

Use Multiple Cards

Another solution to reduce the utilization is to use multiple cards than making all payments from a single card. This will obviously reduce the utilization ratio and will avoid exceeding the threshold value. Multiple payments clubbed with multiple card usage will improve credit score and help reduce utilization. The prime benefit that you will get using multiple cards is that you will get multiple payment alerts and if the cycle of utilization, alerts, and payments is well balanced, it will improve the financial condition of the users


Increase Credit Limit Of Your Card

Ask the card provider to increase the credit limit keeping in mind the monthly income and expenses which will help you reduce the utilization ratio and will keep it under 30 percent, which is generally the recommended value. Keep in mind to only use much that you can pay easily. Do the full payments and always meet the deadlines to avoid penalties.

Set Up Alerts

Another effective way to reduce utilization is to set up utilization alerts. There are so many ways in which these utilization alerts can be set up either by using mobile applications or other software that lets you know the utilization trend. The user needs to respond to such alerts and make sure that the usage is reduced and part payments are done so that no troubles are encountered when the deadline of bill payments approach near.

Cash Payments

If you observe that the utilization ratio has exceeded the threshold value and repayment is becoming difficult for them it is advised to do cash payments of the daily expenses so that a limit can be put to the use of credit card and all risk of penalties by the banks are avoided. Cash payments also help you to purchase things wisely and purchase of unnecessary things is avoided and savings are assured.

Create More Trade Options

For entrepreneurs, it is always recommended to create more trade options with your suppliers whom you pay using the credit cards for purchasing raw materials or other services. Offer the suppliers with trade options and provide them with your products in return to their services or products. This will definitely reduce the utilization of credit cards but will also expand the business opportunities for both the parties as the trading will be done on new terms now which increase the profit margins for both of them.

The Bottom Line

Credit cards come with a lot of perks and benefits that provide you with reward points that can be redeemed to avail discount on the purchase of a lot of products and services including hotel room booking, car service, air ticket booking and many more. But all these benefits cannot be allowed to lure the consumers to over utilize the credit cards and utilization trend must be closely monitored reduce the utilization ratio and avoid being a defaulter by not being able to pay the debts. Measures like the use of multiple cards, trading with the suppliers, cash payments, utilization alerts, mid and early payments will prove to be beneficial and will help you reduce the utilization and will improve credit score. The choices are up for consumer and improvements can be done if the right choices are made.


Leave a Reply

Your email address will not be published. Required fields are marked *