Boosting Credit Score Tricks, Tips: Debt-To-Available-Debt

Often, I hear people asking about tricks to boost their credit score. Here’s a simple one: Keep paying down your credit cards so your monthly statements reflect your balance is 20% of the credit limit.

Make sure to pay this before you receive your statements, or everything I’m about to tell you is pointless.

By doing so, you’re leveraging something called “debt to available debt,” which is a factor in determining your credit score. Debt to available debt is the proportion of your balance to your credit limit.

If you have a $10,000 credit limit, maintaining a maximum balance of $2,000 would be keeping your debt ($2,000) to available debt ($10,000) at 20%.

Another way to work this angle is to request an increase in your credit limit. For instance, if you have a $1,000 balance on a $2,000 credit limit, then your debt ($1,000) to available debt ($2,000) is 50%, which is high. If your creditor raises your limit to $5,000, then your ratio drops to 20% without paying extra money.

You need to be aware that credit card companies can adversely alter your ratio, too. If they freeze your accounts or reduce your available limit, your debt-to-available-debt ratio can spike.

Let’s say you have a $1,000 balance on a $5,000 credit limit, and your creditor reduces your line of credit to $2,000. In this scenario, your debt-to-available-debt ratio would have jumped from 20% to 50%, hurting your score. Just be aware of how debt to available debt works, and use it to your advantage.

In most cases, if you make timely payments and keep your ratio at roughly 20%, your credit score should climb.