Today we are going to answer the question, “what is credit usage?” Your credit usage plays a crucial role in determining your credit score. If you’re applying for a DSCR loan, fix-and-flip loan, or a business line of credit, your credit usage could mean the difference between high-interest rates or securing the best loan terms. Understanding how it works and how to optimize it can help you save money, get better financing, and keep more cash in your pocket. In this guide, we’ll break down everything you need to know about credit usage and how to improve it before applying for a loan.
A Simple Trick to Improve Your Credit Score Before Applying for a Loan
This has a huge impact on your credit score. Whether you’re applying for a DSCR loan, fix-and-flip loan, or a business line of credit, a higher credit score means better loan terms, lower interest rates, and more money in your pocket.
The good news? There’s a quick, legal trick to improve your score before applying. It all comes down to timing when you pay off your credit cards.
Why Credit Usage Matters
Credit usage, also called credit utilization, is the percentage of your available credit that you are using. It makes up 30% of your credit score, which is nearly as important as making on-time payments.
If you use credit cards for everyday expenses, real estate investing, or business purchases, your balance can hurt your score even if you pay in full each month. High balances at the wrong time—like when lenders check your credit—can lead to higher interest rates or loan denials.
How Are Interest Rates Affected
Lenders use a pricing matrix to determine your loan terms. A lower credit score means:
- Higher interest rates
- More fees
- Lower loan-to-value (LTV) ratios
- Potential loan denial
For example, a 720+ score can get you lower rates and higher LTVs, while a 680 score may add extra fees or even disqualify you from certain loans.
Understanding Credit Usage
How is it Calculated?
Credit usage is the amount reported on your statement divided by your total credit limit.
Example:
- Credit Limit: $10,000
- Statement Balance: $5,000
- Credit Usage: 50% ($5,000 / $10,000)
The goal is to keep usage below 30% and ideally between 1-29%.
When is it Reported?
Your credit card issuer reports your balance to the credit bureaus on the statement date—not the due date!
So even if you pay your card in full, a high balance on the statement date can still hurt your score.
The Trick: Pay Down Balances Before the Statement Date
Instead of waiting until the due date, pay your balance before the statement closes. This way, your credit report shows a lower balance and reduces your usage percentage.
Steps to Optimize Your Credit Usage
- Find Your Statement Closing Date
- Look at your most recent statement.
- Find the closing date (not the due date).
- Pay Down Balances a Few Days Before
- Target below 30% usage for all personal credit cards.
- Do not pay it down to zero—keep at least 1%.
- Check Your Credit Score Before Applying
- Use a free credit report tool to confirm updates.
- Ensure your usage reflects the lower balance.
Personal vs. Business Credit Cards
Not all credit cards report to your personal credit.
- Personal Credit Cards – Almost always report to credit bureaus.
- Business Credit Cards – Some report, but many do not.
Solution: Use Business Credit Cards
If you use credit cards often, switch to business credit cards that don’t report to your personal credit. This keeps your personal score higher while still giving you access to funds.
Example: Improving Credit Usage Before a Loan
Imagine you have three personal credit cards:
| Credit Card |
Limit |
Balance |
Usage % |
| Capital One |
$10,000 |
$5,000 |
50% |
| Chase |
$5,000 |
$4,000 |
80% |
| Amex |
$10,000 |
$7,500 |
75% |
| Total |
$25,000 |
$16,500 |
66% |
This high usage hurts your credit score. But if you pay down balances before the statement closes, you can drop your usage below 30%, boosting your score and improving your loan terms.
After payments:
| Credit Card |
New Balance |
New Usage % |
| Capital One |
$1,000 |
10% |
| Chase |
$0 |
0% |
| Amex |
$2,500 |
25% |
| Total |
$3,500 |
14% |
Now, you’re under 30% usage, which can boost your score by 30-50 points and get you better loan rates.
Next Steps
- Before applying for a loan, check your usage and pay down balances early.
- Use business credit cards to prevent high balances from affecting your personal score.
- Check out 0% business credit cards to keep your financing costs low.
By managing your credit usage the right way, you’ll save thousands on interest and secure the best loan terms for your real estate deals!
Contact us for more information about how to calculate your credit usage!
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