Care About Your Credit Score? Get Strategic With Card Limits

If you have credit cards in your wallet, you might track your balances to keep your budget in check, but knowing each card’s credit limit off the top of your head is another story.

However, actively managing how much of your credit limits you are using — also known as your credit utilization ratio — can make a big impact on your credit score.

Your credit score is a mix of many factors, including your credit usage. If you want to build your credit score, focusing on using less of your credit limits is a powerful way to do it. People with excellent credit tend to have low credit utilization ratios.

According to credit expert John Ulzheimer, utilization is one of the more actionable ways to improve your credit: “To the extent you have the ability to pay down your credit card debt, then your ratios are going to go down. That’s just a fact.”

Even if you can’t reduce your balances, a few other strategies can help reduce credit utilization.

WHAT IS A CREDIT LIMIT AND WHO DETERMINES IT?

Your credit limit is the maximum amount you’ve been approved to spend by a creditor, based on factors like your payment history, income and credit score. A credit limit is not set in stone and is likely to change over the life of the account: Your card issuer can increase or decrease your limit without warning, and you can also ask for a credit limit increase (more on that later).