The issue with having high balance is something called the “debt ratio” or the “utilization ratio.”
This debt ratio accounts for 30% of your overall credit score. It is the second most important factor in your credit behind making your payments on time. The good news is, this is very simple to fix. This is actually the fastest “credit destroyer” you can fix that will have the most influence on your score.
So what exactly is that the debt ratio? The debt ratio is determined by your accessible credit limit and how much of that you use.
Let’s say you have a credit card limit of $1,000, if you use $500 of that limit you have a 50% utilization ratio.
Now, that’s not terrible, but it’s not grand either. Ideally you want your utilization rate to be below 22%. Below 10% is even better.
How do you achieve this?
There are a number of ways. First, you can reassign the balance of one of your credit cards to a new or existing credit card.
Please make a note: if you have any debt this can actually help you save on your APR as well. By moving a high balance credit card to a lower balance credit card, you are lowering your use of available credit.
Another option is to slowly pay down the balance that you have on your credit card. This can take a while and you won’t see your score increase as quick, however it’s a powerful long-term plan. Taking care of your debt is the highest concern on your credit.
Because with some aspects of your credit it takes a while to fix. However, with the right ratio you can change it swiftly. This is how you can see your score go up 30 points or more within a month.
By getting a balance transfer or paying down your balance overall you can quickly take care of this dilemma.
Another problem is that a lot of people think that they should reduce their limit so that they can’t spend too much on the card… But this is completely wrong. By reducing your limit you're actually killing your debt ratio.
Another way you can lower your utilization ratio is to contact your credit card issuer and ask for an increase on your credit card limit. If you make your payments on time they should have no problem with this.
These are the three simplest ways to deal with this problem.
1. You can use a balance transfer to lower the amount of credit you’re using on specific card to another card.
2. Slowly pay down your balance until it’s below 22%, preferably under 10%.
3. Contact your credit card issuer and get your limit raised.