How to Improve Debt Utilization

Debt utilization---which is the percentage of your credit card debt in relation to your credit limit---affects your credit score. The more debt you owe, the greater the likelihood of a lower FICO rating. A low rating can lead to higher interest rates on future loans, and possibly result in loan and credit rejections. But you can improve your debt utilization and boost your personal score.

Instructions

1

Begin paying down your debt. Lowering your credit card debt is key to improving your debt utilization. MSN Money recommends a credit card debt utilization ratio of no more than 30 percent. Therefore, if your credit limit is $2,000, the balance on the card should stay below $600. Make larger payments each month to bring down balances.

2

Limit new charges as you reduce your balances. Use cash to pay for purchases as you work to improve your credit card debt utilization. Charging additional items is counterproductive and can slow down all efforts to lower your existing balances. Keep credit cards at home or cut them in half.

3

Request a credit limit increase to avoid a high utilization ratio. If you don't have the disposable income to write a check and pay down your balances, contact your credit card company and ask for a credit limit increase if your balances are close to the limit. An increase expands the gap between your balance and credit limit, and helps lower your debt utilization. Only ask for an increase if you have self-control. A higher limit isn't a reason to charge more and increase your debt amount.