Credit Utilization Matters!
What Is Credit Card Utilization?
Simply put, your credit card utilization ratio is the percentage of your available credit that you’re currently using. It’s a big deal because it makes up about 30% of your overall credit score.
For example, if you have a total credit limit of $20,000 and your balances add up to $15,000, your utilization rate is 75%, which is considered very high. Lenders, particularly unsecured lenders, see this as a red flag because it suggests you’re relying too heavily on credit cards and may struggle if you take on new debt. Ideally, you want to keep your utilization below 30%, and if possible, under 10% for the best rates and terms.
How High Credit Utilization Can Hurt Your Loan Chances
Lenders want to feel confident that you can handle additional debt responsibly. If your utilization is too high, they may:
Decline your application – A high balance signals financial strain, making lenders hesitant to approve you.
Offer lower loan amounts – If approved, you might qualify for much less than you actually need.
Charge higher interest rates or shorter terms – Lenders may compensate for the perceived risk by increasing your interest rate and reducing the term of the loan you are offered.
Require extra conditions – You might need to put up collateral or get a co-signer, making the loan process more complicated; however, this isn’t true for unsecured loans. Your application is likely to be declined.
The Bottom line? A high utilization rate can still hurt your funding options even if you make your payments on time.
How to Improve Your Credit Utilization Before Applying for a Loan
The good news is, credit utilization is one of the easier credit factors to fix—it just takes some strategic thinking! Here are some steps to help lower your ratio and improve your chances of loan approval:
Pay down balances strategically – Focus on paying off high-utilization cards first, especially those nearing their limit.
Increase your credit limits – If you have a strong payment history, consider requesting a credit limit increase. This instantly lowers your utilization ratio (as long as you don’t rack up new debt). Banks like seeing high credit limits with low balances.
Make multiple payments each month – Your balance is usually reported to credit bureaus once a month. Paying it down before the statement closing date can help keep reported utilization lower.
Avoid maxing out any one card – Even if your total utilization is below 30%, maxing out a single card can still hurt your score. Banks look at individual credit utilization when you are applying for unsecured loans. Spread out your balances when possible.
Flourish Commercial Capital Can Help!
If all this talk of credit utilization has you feeling a little overwhelmed—don’t worry, you’re not alone. Navigating the world of business funding can be confusing, but that’s exactly why Flourish Commercial Capital is here.
We help entrepreneurs like you understand how credit factors impact funding opportunities and guide you toward the best financing options for your situation. Whether you’re just starting out or need funding to grow, we’ll help you find the right solution—without the guesswork.
Let’s talk! Reach out today, and let’s get you on the path to securing the funding you need to make your business dreams a reality.
