Credit utilization reflects how much of your available credit is being used at a given time. Lower credit utilization generally indicates that borrowers are not heavily relying on their credit and using their credit responsibly.
Utilization is calculated by dividing your total credit card balances by your total limits. The higher the percentage, the higher the risk, adversely affecting the credit score. Therefore, it's recommended that you keep your utilization under 30% to impact your credit score positively.
If the available limit on a credit card is $12,000 and their average monthly balance is around $3,000, they have a credit utilization of 25%. If for whatever reason, the borrower's available limit was reduced to $6,000, the ratio then increases to 50%, which will likely lower their credit score.
Borrowers who use more than 30% of their available credit should consider making payments toward the balance more frequently, like every two weeks. This keeps the balance lower, and, in many cases, the card issuer will only report the credit activity once a month to the credit bureau, usually on the monthly closing date of the account.
Another option may be to use multiple cards, if they are available, for purchases during the month. Based on the limits of each card, this can result in lower utilization on a single card.
You can also ask for your available credit to be increased. Assuming you have a good history of paying on time, this may be an easy fix. However, before doing this, ask if it could negatively impact your credit score because it may be reported as a hard inquiry on your credit.
If you are trying to improve your score to qualify for a mortgage, consult with a trusted mortgage professional who can advise you specifically about your situation.