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Optimize Your Credit Utilization with O1ne Mortgage

Your credit utilization ratio, also known as the utilization rate, is a crucial factor in determining your credit score. This ratio represents the percentage of available credit you’re using on revolving credit accounts, such as credit cards. A lower credit utilization ratio is generally better for your credit scores, but having a small amount of utilization is better than none at all. Ideally, a utilization rate of around 1% is optimal, but keeping it in the low single digits can also be beneficial.

Average Credit Card Utilization in the U.S.

According to Experian, the average credit card utilization rates in the U.S. have varied over the years:

• 2010: 27%
• 2021: 26%
• 2022: 28% (+2 percentage points from 2021)

How Much Credit Should You Use?

For excellent credit scores, aim for a credit utilization ratio in the single digits. For instance, if your total credit limit across all cards is $10,000, try to keep your usage under $1,000. Occasionally using more credit for emergencies or bills is not necessarily harmful, as long as you pay down the balance quickly.

Credit utilization is a significant factor in various credit scoring models. Most scores consider the current balances and credit limits on your report, providing a snapshot of your financial standing. A high utilization ratio one month may lower your score, but paying down the balance can quickly improve it.

Credit card companies typically report your balance at the end of your billing period. Therefore, even if you pay your bill in full, you might still have a high utilization ratio. To avoid this, consider paying down your balance during the billing period rather than waiting until the due date.

How to Lower Your Credit Utilization Rate

Your credit utilization ratio is calculated using your credit limits and current balances. Here are some strategies to lower your utilization ratio:

Pay Off Credit Card Balances

Make an extra effort to pay off your credit card debt. Avoid adding new debt to your card’s balance by limiting credit card usage.

Request a Credit Limit Increase

Ask your card issuer to increase your credit limit. While approval is not guaranteed, especially if you recently opened the card or have not managed your account responsibly, it’s worth asking. Update your income information regularly, as issuers may raise your limit proactively.

Open a New Credit Card

Opening a new credit card can increase your total available credit, helping to maintain a low utilization ratio. However, research and choose a card you’re likely to be approved for to avoid multiple applications that could harm your credit scores.

Keep Your Credit Cards Open

Even if you no longer use a credit card, keeping it open increases your available credit, contributing to a lower utilization ratio. If the card has an annual fee, consider asking the issuer to switch to a no-fee card.

Use a Loan to Consolidate Credit Card Debt

Credit utilization ratios only consider revolving credit accounts. Using a personal loan to pay down credit card balances moves the debt to an installment account, potentially lowering your utilization ratio and improving your credit scores.

Check and Monitor Your Credit and Utilization

Calculate your credit utilization by comparing the current balances and credit limits for revolving accounts on your credit report. When you check your credit report with Experian, your credit utilization ratio will be automatically calculated and displayed. Monitoring both overall and individual account utilization is essential for maintaining a healthy credit score.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your financial journey with confidence.

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