Keep your Debt Utilization Rate Low

Today’s tip in Credit Report Week: Keep your debt utilization rate low.

When lenders are deciding whether or not to give you credit, they look at your utilization rate. For example, if you have $25,000 in available credit on your credit cards, and you are currently borrowing $2,500, you have a utilization rate of 10%. 10% or lower is ideal, although utilization up to 20% probably won’t hurt you.

If you are over 20% and need to borrow money soon, such as for a new car or house, you have two options.

First, you could apply for an increase in your existing borrowing limits on your existing cards and lines of credit. By increasing the total you are eligible to borrow, you lower your utilization rate.

Of course a better option is to actually pay down the debt that you have. You could have a garage sale and use the money to repay debt, or cash in RRSPs or other savings to repay debt if that makes long term financial sense.

Join the Conversation

Leave a Reply

Your email address will not be published. Required fields are marked *

9 − 8 =