Do you know the best credit utilization tips for helping you maintain a good credit score? Credit utilization is a ratio that shows how much credit you are using in proportion to how much credit you have available.  As a consumer, you need the right credit utilization tips so you can ensure you are handling your credit in the most effective way possible. Not to mention, your credit utilization ratio represents a significant percentage (35%) of your overall credit score.

So how can you improve your credit score through managing your credit utilization ratio? Read on.

Use At Least Two Credit Card Accounts 

When you have multiple credit card accounts, it is possible to fall into debt.  If you can manage them well, though, they can help to minimize your credit card utilization ratio. Just be sure to always pay off your debts in full at the end of each month.

Another way to help out your credit score is to become an authorized user of another credit card account. Just make sure you choose someone with a good credit history. This could be a trusted family member or friend you know to be good with their finances.  As long as they pay off their balances each month on time, your credit score will reap the benefits.

Manage Your Credit Utilization Rate For Each Card

The Georgia Department of Law Consumer Protection Unit states that a “good” credit score has a 10% to 15% credit utilization rate. “Very good” and “excellent” credit scores have 1% to 10% credit utilization rates. Thus to increase your credit score, you should manage the credit utilization ration for each of your accounts. Calculate each credit card’s utilization rate and make sure you keep each to 20% or less. You should also calculate the overall utilization rate of all your cards by getting the total outstanding balances, dividing it by the total credit limit, and multiplying it by 100.

For example, if your first card has a $5,000 credit limit with an outstanding balance of $500, then its credit utilization rate is 10%. If your second card has a $10,000 credit limit with an outstanding balance of $500, then its utilization rate is 5%. If you want to purchase an item through credit, it is best to divide the total amount among each credit card to ensure that each has a credit utilization rate of less than 20%. Ensuring that the “overall” credit utilization rate is less than 20% is also necessary.

Increase Your Credit Limit And Preserve Your Credit History

Getting an increase in your credit limit is a good way to lower your credit utilization rate which consequently increases your credit score. If you have an average monthly outstanding balance of  $2,000 on a credit card with a $5,000 limit, then you have a 40% credit card utilization rate. Increasing your credit card limit to $10,000 can lower your utilization rate to 20%.

Preserving the credit history of your account is a good way to increase your overall score. If you have multiple accounts and are obliged to close some, then opt to close the most recent accounts. It is recommended that you preserve all accounts even those that are barely used. Possessing rarely-used credit cards will lower your utilization rate due to the increase in the amount of your credit limit.

It is important to take care of your credit score as lenders use that to decide whether to grant you credit or not. It will help determine whether you are able to obtain credit for home mortgages, insurance coverage, student loans, auto loans, and rent/ lease agreements. A poor credit score will make obtaining these things that much more difficult.  It can even lead to lost job opportunities.

It is highly recommended that you start building a positive credit reputation as early as possible. Always pay your debts in full at the end of each month while keeping your credit utilization rate in check.