One of the best ways to improve your credit scores quickly is to lower your credit utilization ratio. Decreasing the amount you owe on your credit cards relative to their credit limits can do wonders because amounts owed are a big factor in your scores.
So what can you do to lower your credit utilization ratio fast? Here are a few ideas:
1. Use savings to make a payment
If the balance on one of your cards exceeds 30% of its total credit line, it’s a good idea to prioritize making a big payment. One way to do this is to tap into savings. By using some of your reserves to reduce your debt, you might see improved credit scores in as little as one month.
However, you should think carefully before digging into your savings to pay down a card. It’s important to keep some cash on hand as an emergency fund, so unless you have more than two to three months of expenses in the bank, this might not be a good move.
Still, if you need to boost your credit scores quickly because you’re trying to qualify for a mortgage or other loan, using savings to improve your credit utilization ratio is something to consider. As long as you’re disciplined enough to replace your savings account in a timely fashion, this strategy could work for you.
If your credit scores are decent and there’s no rush to improve them quickly, another idea is to simply make multiple payments to your card every month. This way, you’ll keep your credit utilization ratio in check throughout your billing cycle without having to pilfer (then replenish) your savings.
2. Refinance your credit card debt with a personal loan
If you’re in so much credit card debt that using savings to pay it down won’t make a dent, you could also consider refinancing with a personal loan. This strategy has a number of benefits, starting with the likely boost it will give to your credit score.
As a reminder, your credit utilization ratio is only influenced by the balances you’re carrying on revolving accounts, like credit cards. By refinancing your credit card debt with a personal loan, you’re converting revolving debt into installment-loan debt. This will significantly lower your credit utilization ratio in one swift move. As a bonus, you’ll probably also score a much lower annual percentage rate (APR). This could help you eliminate the balance faster because your payments won’t get totally eaten up by interest.
But before you start submitting personal loan applications, there are a couple of things to keep in mind. For one thing, you’ll probably need good or excellent credit to get this type of loan. If this doesn’t sound like you, be prepared for a potential rejection.
Also, once you’ve moved the debt onto your personal loan, you’ll have a lot of available credit on your card. Don’t let the temptation to go on a spending spree get the best of you.
3. Transfer part of the balance onto a 0% card
Another way to lower the interest rate on your credit card debt is to transfer the balance to a 0% card. However, this isn’t going to be a cure-all for your credit utilization ratio since you’ll likely be eating up most of the available credit on the 0% card when you move your debt onto it.
However, if you only move part of your balance onto a card that’s offering an introductory APR promotion, you might have a solution worked out. This strategy is something to consider if the following two conditions are met:
- You’re transferring a chunk of debt that amounts to less than 30% of the 0% card’s available credit.
- The balance on your original card will now fall below the 30% credit utilization threshold, too.
And remember, the debt you’re moving onto the 0% card won’t be collecting any interest for a period of time. However, be sure to factor in the cost of the balance transfer fee. Most issuers assess a fee of 3% to move your debt onto their card, which cuts into the savings you’re seeing on interest (although there is a card that waives this charge under certain conditions).
One last consideration: You’ll need good or excellent credit to qualify for a 0% promotion, so if you don’t meet this standard, think about applying for a card with a low ongoing APR. They tend to be easier to obtain and will still help you keep your credit utilization ratio under control.
This article was updated Aug. 25, 2016. It originally published Oct. 24, 2014.
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