https://www.thebalance.com/what-is-a-good-credit-utilization-ratio-960548
Your credit utilization - which is the amount of your credit card balance compared to the credit limit - plays a major role in your credit score. Making up 30% of your credit score, credit utilization the second biggest factor that influences your credit score, next to payment history.
Having a good credit utilization is important if you want to build and maintain a good credit score. As your credit utilization increases, your credit score can go down.
A high credit utilization indicates that you're likely spending a lot of your monthly income on debt payments which puts you at a higher risk of defaulting on your payments.
A high credit utilization could lead to your credit card and loan applications being denied. If you are approved, you may have to pay higher interest rates or make a larger down payment than if you had a good credit utilization.
Generally, a good credit utilization ratio less than 30%. That means you're using less than 30% of the total credit available to you. To achieve 30% credit utilization, you should keep your balances below 30% of the credit limit. Anything above 30% can cause your credit score to drop.
First, you can reduce your credit card balances. Pay as much as you can toward your credit card to reduce your credit utilization quickly. Keep in mind that your credit card issuer may not report your balance until the end of your billing cycle, so leave your balance low until then to ensure is shows up on your credit report.
Another way to lower your credit utilization is to have your credit card issuer increase your credit limit, which may not be easy, depending on your income, credit history, and time since your last credit limit increase.
First, opening a new account will likely produce a credit inquiry on your credit reports. This new inquiry may have no effect at all, or may make your scores go down slightly, depending on the type of inquiry and the number of inquiries already present on your report. Applying for credit excessively (like applying for many credit cards at once during the holiday shopping season) can almost always be expected to have a negative impact on your credit scores, as more inquiries tend to indicate higher credit risk.
Also, adding an additional credit line to your credit history can help your scores by lowering your overall revolving credit utilization (total balances/total limits ratio), an important factor in your credit scores. This can occur when the newly added account increases your total credit availability (credit limits), more than it increases your total credit card balances — and thereby reduces this overall ratio. Conversely, if a new credit card carries a high balance, such as when transferring an existing balance to it, this can actually increase your overall revolving credit utilization — and lower your credit scores.
On the other hand, installment credit (mortgage, student, auto) utilization doesn’t have nearly the impact — good or bad — that revolving credit utilization has on scores, since this type of utilization is not nearly as significant a risk indicator. And as a result, there’s no need to worry about the impact of a new installment loan balance on credit scores in the same way you should be concerned about new credit card balances.
Recent Credit History
See a record of Opened Accounts and Hard Inquiries on your credit report over the last 2 years. A consumer that opens a number of credit accounts in a narrow timeframe may be interpreted as experiencing cash flow problems, particularly if utilization of his or her previously existing available credit is very high. In addition, a large number of credit inquiries in a short timeframe may also lower a score. However, multiple inquires for a mortgage or auto loan will be counted as only one inquiry each, enabling consumers to shop for favorable rates without fear of lowering their score.
Current Balances
Current Balances are your outstanding balances due to creditors. Similar to the utilization issue, credit balances current and past provide insight into issues of financial liquidity and prudent borrowing. Historically maintaining high balances on key credit accounts will likely have a negative impact on a score.
Depth of Credit
Depth of Credit is the length of time you've had credit. Having a strong, long history of prudent credit use is ideal under any credit scoring model. But as important as it is to have long-term credit relationships, a diverse mix of credit accounts is also beneficial.
Utilization
Utilization is the percentage of available credit that you've used. Having access to credit is one consideration, and how much of that has been tapped into is another. An individual who has "maxed out" his or her credit cards and/or other lines-of-credit may not be able to obtain any additional credit or credit at the best possible terms. The lack of liquidity may deem these consumers high-risk in the eyes of lenders.
Available Credit
Available Credit is the unused funds you have readily available. Maintaining low balances on credit cards and open lines-of-credit will be a positive factor in generating a score. The typical benchmark is to keep these balances at or below 30% of the total available credit.
Correcting inaccuracies
Under the Fair Credit Reporting Act, consumers are protected if there is inaccurate information on their credit reports. If you find inaccurate information on your credit reports, you can contact the associated creditor or lender directly. You can also dispute the inaccuracy with the credit reporting companies.
Negative Records
Late payments create a negative record. Generally, negative records will stay on your report for up to 7 years (up to 10 years for certain bankruptcy information). Positive records can remain on your credit report longer.
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