Chances are if you have a good credit score your utilization is pretty low.  Those with excellent credit score are usually around 10% to 15%.  This will more than likely leave you with thousands of available credit.  The thought of lowering limits has come across the mind of many people with the idea of, “I don’t need all this credit.”  Chances are they are right, but lowering limits can be damaging to a credit score.

If you do lower limits your utilization is going to go up.  This is the second largest part of your credit score and is calculated by dividing your balances by your credit limits.  So if you have less of a credit limit to divide by your utilization is going to up: hurting your credit score.

If want to lower limits to reduce your exposure to identity theft the better proactive would be to buy a credit monitoring program.  These watch your credit report for an changes and they even come with identity theft insurance. My recommendation is to get FICO® Quarterly Monitoring.  This is $50 a year and it comes with $25,000 in identity theft insurance and you get to review your credit report and credit score 4 times a year.  This is a steal compared to a 3 in 1 credit report.

So if you want to lower your limits this is OK.  There are times to lower limits like if you can’t control your spending.  You can also tell your credit card company to stop it.  The best thing you could do is to just leave them along and what your credit for any thefts.

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The actual calculation for utilization is to take the total amount owed and divide it by the total credit limit.  This is done as a whole and by each account.  So you will have an individual account utilization and a overall utilization.

A common misunderstanding is your utilization is found by what shows up on your credit report and not done a day to day basis.  Your credit score is a snap shot based on your credit report.  If you pay a bill and it has cleared with your account or it is not reported to the credit bureau it will not be counted when calculating utilization.  It doesn’t matter if you just completely paid off the account it will not be counted towards lower your utilization.  If you did do something like this it would be best to wait till it is reported to the credit bureaus and then check your credit score.

MyFICO reports that :

Nearly 37% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.

and

About 15% are far less conservative in their use of credit cards and have total card balances in excess of $10,000.

These are some interesting statistics.  Where do you fall?  If you are looking to improve your credit score, Utilization is a great way.  The issue that many people run into is the fact it is not easy.  If you have over $10,000, it is more than likely not going to paid overnight.  This is a longer term strategy to improve your credit standing.

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