If you apply for a credit increase and are approved, you can almost increase your credit score overnight as your ratios have now changed because your balance remains the same but your credit ceiling is now higher.
In a perfect world, you would pay off your balance in full before the end of your grace period. Unfortunately, most of us don’t live in that world, so back here on earth, lenders use a percentage called “Credit Utilization” to determine your worthiness during the application process with a new bank.
The standard ratio of 3:10 or more commonly displayed as 30% is what most lenders use as their benchmark. It’s the go-to percentage that you are striving for.
In simple terms, it is a comparative tool to help lenders determine how much you owe vs. the total amount of credit you are allotted, aka, your credit limit.
As an example, if Cardholder A has a credit card with a balance of $2000 and a total limit of $7000 their ratio would be 2:7 or as a percentage, 28.5% rounded up to 29%. Just below the threshold, this cardholder would appear responsible to practically any financial institution.
On the flipside, if Cardholder B has a credit card with a balance of $6000 and a total limit of $10,000, their ratio would be 6:10 or displayed as a percentage, 60%.
Well above the threshold, this cardholder would severely affect their own ability to be approved for a new line of credit and most certainly a mortgage.