Tag Archive for: utilization rate

#Trick 1 You Need to Try Before Your Next Loan Application

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Today we are going to discuss the #Trick 1 you need to try before your next loan application. Are you preparing to apply for a loan? Whether it’s a DSCR loan, fix-and-flip financing, or a line of credit, there’s one simple trick to boost your credit score and secure better terms. Let’s walk through this quick, legal strategy to save you money on rates, fees, and more.

Why Your Credit Usage Matters

Before diving in, let’s get clear on why credit usage is key. Credit usage, or utilization, makes up 30% of your credit score. This is the balance reported to credit bureaus divided by your total available credit limit. The lower your usage, the higher your score—and that directly affects:

  • Your loan-to-value ratio (LTV)
  • The interest rate you qualify for
  • Your overall loan approval chances

What’s the Goal?

Keep your credit usage below 30%. Anything lower shows lenders you’re financially responsible. However, avoid a 0% balance—credit bureaus prefer to see some usage.

Here’s an example:

  • Credit limit: $10,000
  • Current balance: $5,000
  • Usage: 50% (too high!)

To hit the ideal range, bring your balance under $3,000, or 29% usage.

How to Lower Credit Usage

  1. Find Your Statement Dates
    Check your credit card statements for the closing date. This is when your balance is reported to credit bureaus.
  2. Pay Before the Statement Date
    Pay your balances before the closing date to ensure the lower amount gets reported.
  3. Focus on Credit-Reporting Cards
    Personal credit cards and some business cards (like Capital One) report balances to credit bureaus. Use these cards strategically, or switch to non-reporting business cards to avoid usage issues altogether.

Quick Example:

Let’s say you have the following cards:

  • Capital One: $5,000 balance, $10,000 limit
  • Chase: $4,000 balance, $5,000 limit
  • American Express: $7,500 balance, $10,000 limit

Total credit: $25,000
Current balances: $16,500
Usage: 66% (too high!)

To get under 30%, pay down:

  • $2,000 on Capital One
  • $4,000 on Chase
  • $5,000 on American Express

New balances: $5,500
Usage: 22% (perfect!)

Why It Pays to Try This

Lowering your credit usage before applying for a loan can:

  • Improve your credit score
  • Qualify you for better interest rates
  • Save you thousands over the loan term

For example, a DSCR loan could offer an extra point off your rate by simply boosting your score. Over a 30-year loan, that’s a huge savings!

Final Thoughts: Stay Ahead of the Game

This trick is simple but effective. Anytime you’re applying for new credit, check your usage, know your statement dates, and pay down balances early. If you’re tired of juggling personal credit cards, consider switching to business cards that don’t report to bureaus.

Want to learn more about setting up the perfect money bucket to fund your deals? Check out our guide here.

Watch our most recent video to find out more about: #Trick 1 You Need to Try Before Your Next Loan Application

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How Your Revolving Debt Utilization Rate Affects Your Credit Score

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Utilization Rate Affects Your Credit Score

When you apply for a loan, the lender will look at your credit report to assess your creditworthiness. One key metric lenders use is your revolving debt utilization rate, or the percentage of your available credit you’re using. A high revolving utilization ratio can make it harder to get approved for loans. Knowing how your revolving utilization rate impacts your credit score and taking preventative steps to keep it low can help you improve your chances of getting the loan approval you want.

What is a revolving debt utilization rate?

A revolving debt utilization rate is the amount of debt you currently owe on revolving credit accounts (such as credit cards) divided by your total credit limit on those accounts. It’s calculated by adding up the outstanding balances of your revolving credit, like credit cards and home equity lines of credit, and then subtracting the respective credit limits from those totals to find the debt-to-credit ratio. You can calculate this ratio by tallying up the outstanding balances on all your revolving credit and then dividing the result by the respective credit limit to find your utilization percentage.

Your credit utilization rate is used to predict your credit risk and has a significant impact on your FICO credit scores, making it the second-most important factor behind only your payment history in the scoring model. The higher your revolving utilization, the more likely you are to have difficulty repaying what you borrow. For example, if you have a credit card with a balance of $2,000 and a credit limit of $10,000, your utilization rate is 20%.

However, it’s important to remember that revolving debt utilization rates only include revolving credit accounts such as credit cards and home equity lines of credit; they don’t consider other types of debt, like installment loans, which have a set repayment schedule. For this reason, credit card balances tend to have a greater impact on your credit scores than mortgage and auto loans, which are reported as installment debt.

What is a good revolving debt utilization rate?

Lenders typically prefer to see that borrowers aren’t using more than 30% of their revolving credit limit. Carrying too much debt could indicate you’re having trouble repaying what you’ve borrowed or may be struggling financially.

In addition, many lenders have their own guidelines for what is considered a “good” revolving debt utilization rate. Some lenders will decline applications for credit or will only approve applicants with revolving debt utilization rates below certain thresholds.

Keeping your revolving credit utilization low is a great way to improve your credit score, and it can also save you money on interest payments. To lower your utilization rate, make sure you pay off your credit card balances each month, and try to keep your balances as low as possible. If you have trouble paying off your balances each month, call your credit card company to see if they can give you more time to pay your bill or set up automatic payments.

 

Find out how a loan can raise your score in 30 days or less

 

Utilization Rate Affects Your Credit Score.

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