One of the keys to having good credit scores is to stay way below your credit limits. This is especially true around the time you are trying to secure a loan for a new home or trying to refinance. Credit is tight enough in this market that you don’t need to ding yourself in the process. A few months before you apply for a loan start cutting back your credit card usage substantially. Ideally, you can even switch to all cash for a few months. Don’t do this for too long, as in some cases, credit card issuers are starting to close down credit cards.
The average credit card utilization in the US is around 30%. That means someone is using about $5700 in charges on an aggregate limit of $19,000. People with fantastic scores are lowering this usage to about 5-10% or $1000-$1900 on a $19,000 combined limit. This is a good tactic to follow, again, especially around the time you need a loan.
Also, don’t just focus on the aggregate limits. You need to keep your utilization at 10% on all your individual cards. If you have a card that is nearly maxed out, that’s the one to pay down first if you are getting ready to purchase a house.
photo credit: Jan Tonnesen
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