If you have credit cards in your wallet, you can track your balances to control your budget, but knowing each card’s credit limit is another story. However, actively managing how much of your credit limits you use, also known as the credit utilization rate, can have a big impact on your credit score.
Your credit score is a mixture of many factors, including your use of credit. If you want to increase your credit score, focusing on using less than your credit limits is an effective way to do it. People with excellent credit tend to have low credit utilization rates.
According to credit expert John Ulzheimer, use is one of the most tangible ways to improve your credit: “To the extent that you have the capacity to pay off your credit card debt, your ratios will go down. It’s just a fact.
Even if you can’t reduce your balances, there are a few other strategies that can help reduce your credit usage.
WHAT IS A CREDIT LIMIT AND WHO DETERMINES IT?
Your credit limit is the maximum amount that you have been allowed to spend by a creditor, based on factors such as your payment history, income, and credit rating. A credit limit is not set in stone and is subject to change during the life of the account: your card issuer can increase or decrease your limit without warning, and you can also request a credit limit increase (we will come back to this later).