How to Lower Credit Utilization

Credit utilization is one of the highest weighted values to determine credit scores.

The ways to lower your utilization ratios are to either pay down the debt or increase credit limits.

Sometimes, you can manipulate this statistic.

How?

Knowing the report date for your credit cards transferring a balance off the card before it reports and having it report a low or no balance will improve your score.

The problem many will face when trying to transfer a balance is the balance transfer fee.

Most cards charge a 3 to 5% fee, or a dollar amount like $5 or $10 depending on the amount transferred and if the percent or the dollar amount is higher.

Having a line of credit, not a credit card, but an actual line of credit allows you to transfer cash into your checking account which you can use however you like.

There are also cards that have no balance transfer fee. Having 2 or more of these types of cards with enough available credit can allow you to continually shift the debt away from the card that is reporting to look like you are not carrying any balances. This will also raise your score.

Another potential option, which depends on your credit cards and their offers, is where the credit card allows you to take out a loan against the balance of your card which acts like an installment loan. There is not usually a fee for this. No credit check either.

The same applies when you use one credit line to transfer the balance before the reporting date and then, instead of another transfer, you take the card that allows you to borrow against your credit line, and get the money into your account.

You use the cash to pay down the card you used to make the balance transfer to and then, repeat the process until you have paid off the debt, got the score you want for the reason you needed, or have no need for a good credit score.

I don’t know for sure that the credit card companies will continue to make the same types of offers in the future or if they will allow me to keep doing this every month but as long as it is available I know of no laws prohibiting anyone from doing this.

You must be meticulous with timing and must have the right credit tools available or you will end up in a very expensive situation that is hurting you in the long run, even if it helps temporarily.

When you pay a balance transfer fee of 3% it is not bad. If you have to pay it on each card each time you transfer the balance you end up paying way more interest than if you just let it sit on one card.

If doing this for one or two months allows you to raise your credit score to a high enough level to acquire another line of credit or loan then it may be worth it, otherwise, it will be extremely expensive.

While you are not really lowering your utilization you are making yourself appear as having a lower utilization which will raise your credit score.

The higher score doesn’t do anything for you unless you are planning on applying for new credit or refinancing debts and the higher score helps keep borrowing expenses lower than if you leave the balance where it is easily seen and reported.

There is a way to help speed up paying down debts and when used in conjunction with this idea of shifting debt around to get a higher credit score you end up with a high credit score, no debt and a healthy positive cash flow.

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