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If you are looking for the best credit cards for lowering utilization, the three main options you’ll encounter are high-limit, balance transfer, and secured cards.
Compare high limit vs. balance transfer vs. secured credit cards so you can identify the right choice for your financial goals.
How credit cards affect your utilization rate
Your credit utilization rate is the percentage of available credit you’re using. For example, if you have a $1,000 limit and a balance of $500, your utilization is 50%.
Lower is better. Most experts recommend a utilization rate of 30% or less. Credit cards impact both your limit and your balance. When choosing a card, you can prioritize options that increase your available credit by a large margin, reduce your balances, or help you build credit from scratch.
High-limit credit cards
High-limit credit cards have a limit that’s notably higher than your average card. You may see limits of $5,000, $10,000, or more, depending on your credit profile.
How a higher limit lowers your utilization
High-limit cards increase your total available credit, which lowers your utilization. While the balance on your other cards will stay the same, the utilization rate drops when you get a new high-limit card.
If you have a $2,000 balance and a $2,000 limit, your utilization rate is 100%. If you get a new $8,000 limit credit card with no balance, your cumulative limit becomes $10,000, and your utilization rate drops to 20% with the same $2,000 balance.
Who this approach works best for
It can be difficult to get a high-limit card if you have a lower credit score, so this approach is best for those who already have an excellent credit score.
Balance transfer credit cards
Balance transfer credit cards typically include a low or 0% APR promotional period. You are also allowed to transfer the balance from other cards to this credit card, up to a certain limit.
How moving debt affects your utilization
A balance transfer credit card will come with a credit limit, which means your total utilization cap increases, much like with a high-limit credit card. Additionally, you can transfer high-interest card balances to the lower-interest card and take advantage of the promotional period.
Who this approach works best for
You should consider a balance transfer card if you have existing high-interest debt and qualify for promotional offers. The card can improve your utilization percentage and save you hundreds or thousands in interest. If you are going this route, try to pay down as much of the transferred debt as you can during the promo period.
Secured credit cards
Secured credit cards require a deposit. That deposit typically becomes your credit limit.
How secured cards factor into utilization
While the limits of secured cards are often lower, they still contribute to your total available credit. You can use them to reduce your utilization rate and improve your credit mix.
Who this approach works best for
You should consider a secured credit card if you have a limited financial history or are rebuilding after a rough patch. A secured card may be easier to qualify for and help you bounce back.
Which type of card makes the most sense for you?
The high limit vs. balance transfer vs. secured credit card conversation comes down to what’s best for you. Here are some general tips to help you decide:
- Choose a high-limit card if you have decent credit and want your utilization to drop quickly
- Choose a balance transfer card to reduce the interest rate and pay down debt
- Go with a secured card if you’re building or rebuilding your score
You can also build credit outside of traditional cards with tools like Kikoff.
Conclusion
Now that you know the best credit cards for lowering utilization, it’s time to explore all of your options. If you are looking for one resource that provides multiple tools, Kikoff is a great choice. In addition to offering a secured credit card, Kikoff also provides tools like:
- A free credit account
- Verified rent reporting
- Invite-only credit builder loans
Frequently Asked Questions
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