How To Hide Credit Card Utilization?
Credit card utilization is one of the most important aspects of our overall credit score. Poor usage of credit utilization can result in a poorer credit rating and vice versa.
Therefore, it’s logical that we might want to know how to hide our credit card utilization – so that’s what we will examine today. How do you hide your credit card utilization?
It’s crucial that we understand initially, there is no way to “hide” credit card utilization. It’s a myth that some people can avoid things on their credit report. However, it is entirely possible to reduce credit card utilization – which is the key component in your credit score.
By reducing your credit card utilization, you will be reducing your overall debt – which together is financially fantastic.
Discover The Reports: Payment History
Discovering when your credit card issuer reports to the credit bureaus about your payment history can be a fantastic help that few people ever take advantage of. Let’s say you pay off your credit card debt in full every month – which you should do anyway – but your reported date is before this, you could end up with a report that indicates high debt (or high utilization).
The way around this after discovering the reporting date is to try and pay off a bit more of the card before the payment and statement date. A good idea is to pay off half in the middle of the month and then the other half on the due date – depending on how much you owe.
How Credit Utilization Works?
Credit card utilization refers to the ratio between your credit limit and your debt. Here’s an example:
You have two credit cards. Credit card 1 has a $6,000 credit limit and you’ve used it to a balance of $2,500. Credit card 2 has a $10,000 credit limit and you’ve used it to a balance of $1,000.
Credit card 1 = A utilization percentage of 42%
Credit card 2 = A utilization percentage of 10%
An overall ratio of 22%.
Experts have said that your credit utilization ratio should be 30% or lower on both individual and overall credit – however, to boost your credit score higher, you should be aiming for 10% at the most.
Clear Your Debts Strategically
Look at the previous card 1 and 2 example. When it comes to your credit card utilization, as we said – it’s better to have a lower ratio than a higher one. In the example, we see card 1 has a 42% credit utilization ratio and we’re wanting 30% or lower (but preferably around 10%).
We know that we want to try and pay the card more than once in a month to try and get the utilization lower before the report goes to the bureau. The great strategy here is to try and chip away at card 1 rather than card 2, as we’re looking to reduce that 42%.
Why Should I Pay Twice A Month?
Besides the fact that you want to reduce your credit utilization ratio, keeping a balance can incur, what are often huge APR interest rates, which will cause more financial trouble. It’s wise to check what sort of credit card you have before you build a balance on it.
It’s never a great idea to use a credit card as a long term “loan”. The only time this is different is if you’ve applied for a 0% purchase card in order to make a large purchase. Usually, the lender will provide this type of card with 0% APR for 24-36 months, allowing you to clear the debt over that time.
Increase Your Credit Limit
It goes without saying that your credit card utilization ratio will be lower if your credit card limit(s) are increased. However, it is important to remember not to change your spending habits when you get a credit card limit increase because you won’t reap the benefits of the increase.
It’s also wise not to apply for a credit limit increase if you have a history of poor credit management.
Going by our example earlier. If card 1’s credit limit was increased to $8,500 from $6,000 – the 42% credit utilization ratio decreases to 29%. Under the 30% mark which is great!
Understanding Your Score
If we use FICO as an example (because they’re used 90% of the time by lenders!) then we can see how they create your credit report and what it’s made up of.
- 35% = Payment history
- 30% = Money owed
- 15% = Credit history length
- 10% = New credit
- 10% = Credit mix
That last one might be new to some of you, as it’s not an area that most people would consider when it comes to their credit report. It refers to the type of credit you have – for example, credit cards, mortgages, loans, car finance or store cards.
If you’re looking for a long term approach for boosting your credit score, this is a good way to do it.
Don’t take out a loan if you’re planning on a big financial change (such as remortgaging) because initially your credit score will take a small hit – but then it’ll slowly grow as the repayments come in.
The best FICO score to have is 800+ which is deemed as exceptional, whereas the lowest score is 580 or less. The lower your score, the less likely you are to be approved for credit with lenders. The level of risk to the lender is higher, the lower your credit score.
What To Remember
You can’t “hide” your credit card utilization, but you can take steps to improve it. Remembering the basics to improve your credit score can really help you in the long run.
Keep These Pointers In Mind
- Pay twice in a month: This will improve your credit card utilization ratio when it comes to reporting to the bureau.
- Increase the limit: A higher credit limit will give you a better ratio, assuming you don’t increase spending.