You’ve probably heard the term “revolving utilization” thrown around when discussing credit scores. But what exactly does it mean? Simply put, revolving utilization is the percentage of credit you’re using compared to the amount of credit available to you. It’s a key factor in determining your credit score and can have a big impact on your financial future.
Revolving utilization calculation
For example, let’s say you have a credit card with a $10,000 limit. If you’ve charged $2,500 to that card, your revolving utilization would be 25%. This means you’re using a quarter of the available credit on that card. If you have many cards, you add up all the balances and divide this total by the sum of your credit limits.
You can calculate this for your cards using Excel or Google Sheets or you can try an online calculator.
So, what level of revolving utilization is considered good? In general, experts recommend keeping it below 30%. If you’re using more than 30% of your available credit, it can start to negatively impact your credit score. However, the lower your utilization, the better your score will be.
Why should you care?
So, why does revolving utilization matter? When lenders are deciding whether to approve you for a loan or credit card, they want to see that you’re responsible with credit. If you’re using too much of your available credit, it could be a red flag that you’re relying too heavily on credit, which could make you a higher risk for lenders.
Revolving utilization also affects your credit score directly. Your credit score is determined by a variety of factors, including your payment history, the length of your credit history, and your credit mix. However, your credit utilization ratio is one of the most important factors in determining your score.
Ways to improve it
If you’re looking to improve your credit score, there are a few strategies you can use to improve your revolving utilization:
- Pay down your balances. The simplest way to lower your revolving utilization is to pay off some of your balances. This will increase the amount of available credit you have, which will automatically lower your utilization ratio.
- Request a credit limit increase. Another way to improve your utilization ratio is to request a credit limit increase on one or more of your credit cards. If you’re approved for a higher limit, your available credit will increase, which will lower your utilization ratio as long as you don’t increase your spending.
- Open a new credit account. While this strategy should be used with caution, opening a new credit account can also help improve your utilization ratio. When you open a new account, you’re increasing your available credit, which can help lower your utilization ratio. However, be sure to only open new accounts if you can manage them responsibly, as opening too many accounts at once can actually hurt your credit score.
- Get a secondary tradeline. An alternative to adding new credit on your own is to be added as unauthorized to someone else’s card. You can ask a favor to a friend or family member, or you can pay to be added by buying a tradeline. You can buy one from us.
Wrapping up
Revolving utilization is an important factor in determining your credit score, and keeping your utilization ratio low can help you maintain a healthy credit score. By understanding how revolving utilization works and using strategies to improve your utilization ratio, you can rev up your credit score and pave the way to a brighter financial future.
Resources
Here is a list of resources to get started: we have a list of tradelines for sale, a tradelines FAQ, various posts about tradelines, a chart of tradeline prices from competitor sites, and a contact form to ask further questions.
Also, feel welcome to ask further questions below.
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