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Credit utilization is one of the most important factors in your credit score, accounting for about 30% of the total. For physicians, understanding and managing credit utilization can make a significant difference when preparing for major financial decisions, such as buying a home or expanding your practice.
What Is Credit Utilization?
Credit utilization refers to the percentage of your available credit that you’re currently using. It’s calculated both per card and across all your revolving accounts. According to our experts, “Credit utilization is where you make the biggest impact when improving credit… The bureaus like you to be at anywhere between 10 and 30% of your credit limit.”
Best Practices for Managing Credit Utilization
- Keep Balances Low: Aim to keep your balances under 30% of your credit limit on each card. For optimal results, staying closer to 10% is even better.
- Accept Credit Limit Increases: If your bank offers a credit limit increase, accepting it (without increasing your spending) can instantly improve your utilization ratio.
- Monitor Regularly: Track your balances and available credit monthly to avoid accidental spikes in utilization.
Actionable Tips for Managing Credit Utilization
- Pay Balances Early and Often: Don’t wait for your statement date, pay down balances as soon as possible to keep your utilization low. Treating your credit card like a debit card can help you avoid high balances and interest charges.
- Request Credit Limit Increases: Much like accepting limit increase offers from your bank, you can also request an increase to instantly improve the utilization ratio.
- Spread Balances Across Multiple Cards: Rather than maxing out one card, distribute expenses to keep each card’s utilization low. This approach is favored by credit bureaus and can help maintain a strong score.
- Keep Old Accounts Open: Closing older credit cards can reduce your total available credit and increase your utilization rate. Keep accounts open and active with small, periodic purchases.
- Monitor Your Credit Regularly: Use credit monitoring tools to track your utilization and catch errors or fraud early. Many bureaus offer free access to your score and alerts.
Credit Utilization Myths
- Myth: Carrying a balance helps your score.
Fact: Paying off balances in full is best; carrying debt only increases your utilization and costs you interest.
- Myth: Closing unused cards improves your score.
Fact: Closing cards can hurt your utilization ratio and shorten your credit history.
- Myth: Checking your credit hurts your score.
Fact: Soft inquiries (like checking your own score) don’t affect your credit. Only hard inquiries from lenders can impact your score.
- Myth: Paying late just once won’t matter.
Fact: Even one late payment can significantly hurt your score and stay on your report for years.
- Myth: All debt is bad for your credit.
Fact: Certain types of debt, like installment loans paid on time, can actually help your credit mix and improve your score.
Why It Matters for Physicians
Maintaining healthy credit utilization not only boosts your credit score but also positions you for better loan terms and financial flexibility. Whether you’re planning a major purchase or simply want to keep your financial profile strong, disciplined credit management is essential. For help with your current credit utilization, contact one of our experts today.
Mandy Kuipers
With a remarkable 28-year career in banking, Mandy has built an impressive foundation in commercial banking and mortgage lending. As a dedicated Mortgage Loan Officer for the past nine years, she brings her wealth of experience and passion to her role at Heritage Bank NA, where she has been making a difference since October 2021.
Mandy’s efforts and dedication have not gone unnoticed. She was honored as the Chamber Ambassador of the Year, a testament to her leadership and community involvement. Looking ahead, she aims to expand her reach beyond the South Dakota market to assist clients across the U.S. while strengthening her presence in Sioux Falls.
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