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Credit Utilization Ratio & Why It Is Extremely Important

I always talk about the importance of monitoring your Credit Score via free sites like Credit Karma and Credit Sesame, but in recent days I have realized that there are a few other factors that Readers might not be aware of which ultimately impact your chances of getting approved for a Credit Card.

Yes, I am aware that talking about Credit is not really sexy and in fact quite boring, but ultimately it can be the difference between getting approved for a 100,000 Mile Credit Card and being told, “Sorry, please try again next year”. 

While in the coming weeks, I will do an in-depth posts about Credit Scores, the reason why I am writing about this today is because 2 FFU Readers recently signed up for the SPG AMEX and Chase Sapphire Preferred, and both were denied.

The reason why this is important is because they weren’t denied because of their Credit Scores, Credit History, or not paying their bills on time, instead they were denied because of their Credit Utilization Ratio & Low Credit Limit.

What Is A Credit Utilization Ratio?

Most people know what a Credit Limit is but not that many people are familiar with Credit Utilization Ratios (CUR).

In laymen terms, your Credit Utilization Ratio is how much Credit you are using in comparison to how much Total Credit you have available.

If the Bank gives you Credit Card with a $10,000 Credit Limit, then that $10,000 is your Total Available Credit.

If in 1 month, you put $3,000 on your Credit Card, then you have used up 30% of your $10,000 in Available Credit that month.

Thus your Credit Utilization Ratio is your (Monthly Statement Balance) / (Total Available Credit).

Why Credit Utilization Ratios Are Important

Most of us know the general factors that impact your Credit Score; opening or closing a Credit Card, not paying your bills on time, a short Credit History, etc.  

What most people don’t know is that even if you pay your bills in full every month and never miss a payment, your Credit Score will still go down if your Credit Utilization Ratio is too high.

Of course to normal Consumers, this makes absolutely no sense and is extremely counter-intuitive, but unfortunately those are rules of the game.

For example say you get a Credit Card with a $1,000 Credit Limit, you charge $950 in a month and then pay it off in full at the end of the month.

In most people’s minds, it shows responsibility that you were able to charge $950 and then pay it off in full without incurring interest.

However to a Bank, you look extremely risky because you had to use 95% of your Total Available Credit. They don’t care that you paid it off in full next month.

You have to remember that Banks have millions of Customers who don’t pay their bills on time, so when the Bank sees someone using 95% of their Total Available Credit, their first thought is, “What if this person doesn’t pay their bill this month”.

What makes things even worse is that if you have ever looked at your Credit Report, you will see that next to your Credit Card Account there is a line that say “Balance”. Occasionally, it will say “High Balance”.

Every month Credit Card Issuers like Chase, send a report to Credit Reporting Agencies like Experian and TransUnion about how much your balance was that month.

Occasionally, they will even report the Highest Balance you have ever had on the Card.

So if for 11 months you only spent $100 and then 1 month you spend $950, the $950 is what will show up on your Credit Report!

Again it makes no sense and even my Friends who are Middle Market Credit Analysts at major Banks were dumbfounded when I told them about Credit Utilization Ratios for Personal Credit Cards.

So basically to sum it up, Banks have no problem giving you Credit but they will ultimately punish you if you use too much of your Credit Line regardless if you pay your bills on time.

Real Life Examples

FFU Reader 1 signed up for the Chase Sapphire Preferred in March and was approved with a $5,000 Credit Limit.

Over the last few months, she has used it and always paid it off in full.

Last month she had some big expenses so she charged $3,000 on it.

Unannounced to her, even though she paid off her balance, that $3,000 was reported by Chase to the Credit Reporting Agency which gave her a Credit Utilization Ratio of 60%.

When she went to apply for the SPG AMEX this week, even though her Credit Score is in the mid 700s, she was denied because AMEX is notorious for having really strict Credit standards and her 60% CUR did not cut it.

Another FFU Reader informed me that she just today tried to apply for the Chase Sapphire Preferred Card.

According to Credit Karma her Credit Score is 767, but the only Credit Card she has is a Bank of America Credit Card with a $1,500 Credit Limit.

When she went to apply for the Chase Sapphire Preferred, she was denied.

After calling the Chase Reconsideration Line, they told her the minimum Credit Line on the Sapphire Preferred is $5,000 and because none of her others Credit Cards had a $5,000 Credit Limit, they could not approve her. 

Although FFU Reader 2’s case does not directly pertain to Credit Utilization Ratio, I suspect that it still played a factor since a $1,500 Credit Limit is nothing and you could easily max out your CUR.

Again remember that Banks don’t care that you always pay your bills on time!

The Ideal Credit Utilization Ratio

Since Banks are extremely concerned about Credit Utilization Ratios (CUR), then the next question is what is an ideal CUR? 

Basically Banks want to see that you are using your Credit Card, but not using it so much that you are a risk.

So to meet that requirement, I’d say ideally you want your CUR to be between 5% – 10%, but really the lower the better.

At a minimum, you want to stay below 30% because anything above that can significantly impact your Credit Score. 

Below is my Open Credit Utilization (aka Credit Utilization Ratio) from Credit Karma.

As you can see my Total Available Credit is $40,000, while my outstanding balance is $500, which makes my CUR only 1%!

How To Boost Your Credit Utilization Ratio

While it may sound crazy to only use 5% – 10% of your Total Available Credit (especially if your Credit Limit is really low), there are ways to still use your Credit Card on a normal basis and boost your Credit Utilization Ratio.

1. Increase Your Credit Limit

If your Credit Utilization Ratio is based on your (Monthly Statement Balance) / (Total Available Credit), the easiest way to increase your CUR is to simply increase your Total Available Credit.

If your Credit Limit is $1,000 and your Balance is $900, your CUR is 90%.

However if you call and have your Credit Limit raised to $5,000, then magically your CUR drops from 90% to only 20%!

To get your Credit Line increased, simply call your Credit Card company and ask if they can review your Account and possibly raise your Credit Limit.

It is that easy!

One thing to point out is that when they are reviewing your Account, YOU DO NOT WANT THEM TO DO A HARD PULL.

A Hard Pull is when they actually pull your Credit Report from the Credit Reporting Agency and look over it.

If you apply for a new Credit Card, this is the exact same process that they do and these types of “Hard Pulls” can bring your Credit Score down and stay on your Credit Report for 2 years.

Therefore before they do your Account Review, simply ask what type of pull they are going to do, either Soft or Hard. They will know what you are talking about.

A Soft Pull is where they look at your Credit History in their system and make a judgement based on that information.

So if they see for the last 3 years that you have paid your Credit Card bill on time and never had any issues, then that is enough information for them to raise your Credit Limit.

Ultimately every Bank is different.

I have a Capital One and Discover Card that I don’t really use and the limits are $1,000 and $2,500.

When I called and asked for them to do a Soft Pull and raise my limit, they told me that because I didn’t use the Cards enough, they didn’t have enough data to warrant a Soft Pull, so they could only do a Hard Pull.

I didn’t think it was worth it since I wasn’t planning on using the Cards in the future, so I just left it as is.

Chase on the other hand is pretty accommodating for Soft Pulls and I have never had an issue with having them raise my Credit Limit.

2. Get A New Credit Card

While your Credit Report typically shows the balance on all of your Credit Cards, your Credit Utilization Ratio is based on your TOTAL Available Credit for all your Credit Cards.

So if you only have 1 Card with a $1,000 Credit Limit, then your Total Available Credit is only $1,000.

If you have 2 Cards, 1 with a $1,000 Credit Limit and another with a $10,000 Credit Limit,  then your Total Available Credit is $11,000.

This makes a huge difference because every month when the Credit Reporting Agencies calculate your CUR, the larger your Total Available Credit, the lower your CUR!

Again this may sound counter-intuitive, but if you only have 1 or 2 Credit Cards, I suggest getting another as it will lower your CUR and increase your Credit Score.

The reason for this is because it basically spreads around the risk for Credit Card companies.

If Chase sees you only have 1 other Credit Card from Bank of America that has a $1,000 Credit Limit, they might be reluctant to give you a Card.

However if Chase sees that you have a Bank of America Card, an AMEX Card, and a Citi Card, they will see that 3 other companies have also trusted you with Credit, so they will be more open to giving you a Card.

At its most basic level, “Credit” is how trustworthy you are in paying back your debts (unless you are a Lannister then you always pay your debts)!

Thus the more Credit you have available, the more people have trusted you to pay back your debts, the more credit-worthy you become. 

3. Pay Your Credit Card Bill Before The Statement Date

This tip I provide mostly to College Kids who are just getting their 1st Credit Card since their limit is typically like $250, however it is something that everyone can do to boost their CUR.

My Cousin ran into this exact problem because he has a real job now that pays real money, but he didn’t have a Credit History. Thus Capital One only gave him a $250 Credit Limit on his first ever Credit Card.

He just moved to Seattle and had to buy apartment furnishings but since his Credit Limit was only $250, he didn’t know what to do.

A single $250 purchase could easily push his CUR to 100%, which is never good if you just were issued your first Credit Card and don’t have any prior Credit History!

Ultimately my suggestion to him was to simply buy whatever he needed (as long as it was not over his $250 Credit Limit), and then simply pay off the balance before the Statement came out.

This will not affect his CUR because your Credit Card information is only sent to the Credit Reporting Agencies once a month after your Statement comes out, and again the Banks only send your Outstanding Balance information. 

So if my Cousin’s Statement is processed on the 1st of every month, then from the 2nd of every month until the the start of the next month, he can spend whatever he wants on his Card as long as he pays it off before his next Statement comes out.

For example if his Statement came out on August 1st and on August 2nd he went to and buys a bedding set for $225, if he pays his new $225 balance off once he gets home, then his Total Available Credit once again drops back to $250.

Once his Total Available Credit is back to $250, he can go out the next week and buy some more stuff for another $100, and pay off $90 when he gets home.

When his Credit Card Statement comes out September 1st, assuming he makes no additional purchases, it will show that his balance is $10, so he only used 4% of his Total Available Credit that month, when in reality he charged over $325 that month!

To the Capital One it will look like he is low risk with 4% CUR, all while he is still able to use his Credit Card to buy stuff that he actually needs without being tied down to the $250 a month Credit Limit.

While this is an extreme case since my Cousin’s limit is so low, I highly encourage those of you even with a $10,000 Credit Limit to do this if you ever have a huge purchase that bumps up your CUR.

I just bought a $1,500 Road Bike on my new SPG Business AMEX which has a $6,000 Credit Limit.

I know that AMEX is really stingy about Credit, so instead of waiting until my Statement comes out next month where I will have used $1,500 of my $6,000 in Total Available Credit, a few days after I bought my bike, I simply paid $1,250 towards my balance.

This way when my Statement comes out, it will show an outstanding balance of $250 (4% CUR) instead of $1,500 (25% CUR).

The best part is that you still earn Points and Miles for those purchases even if you pay them off before your next Statement comes out!

Recap

Hopefully for those of you that were not aware of Credit Utilization Ratios, this sheds some light on the topic.

Although CUR is important, don’t let it drive you nuts and force you to start paying with Cash or your Debit Card.

If your CUR goes over 30%, simply pay down your balance before the Statement comes out!

If you monitor your Credit Score via Credit Karma or Credit Sesame, I guarantee if you keep your CUR under control, you will see a gradual rise in your Credit Score. 

I’ll probably be writing more about the exciting world of Credit in the future, but in the mean time feel free to ask me any questions you might have!

-Parag 

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How To Earn Even More Bonus Points On Your Hotel Stays

REMINDER: If you haven’t already signed up for the SPG 2 free night certificates. Only 90 people have entered so far, so you have a more than 1% chance of winning! Contest ends on Friday! You can enter here.

I’m in the process of booking a few Hotels for an upcoming trip, so over the coming weeks I will be sharing all my little tips and tricks that I have been using to get some steep discounts on 4 – 5 Star Hotels. 

While making my bookings, I of course had to use my favorite hotel trick that I wrote about a while ago, which allows you to knock over 25% off a Marriott stay.

Anyways, as I was booking my upcoming stay at Marriott, I was of course thinking about which Credit Card to book with to get the most Miles and if there were any other ways to earn even more Marriott Points.

Out of habit, I visited Evreward & TopCashBack to see if there was anything I was forgetting.

To my surprise (ie. I totally forgot), you can get Bonus Points for Hotel Bookings by clicking thru Chase’s Ultimate Rewards Shopping Mall.

Now to be able to access Chase’s Ultimate Rewards Shopping Mall, you do need a Card that earns Ultimate Rewards. Those Cards can all be found here.

Below are all the Hotels and Websites that qualify to earn Bonus Points via Chase. 

Expcet for Hyatt, almost all major Hotel Brands are listed which is pretty amazing!

Marriott

In the case of Marriott, you can get 3 extra UR Points per $1 spent.

The reason that this is significant, is that depending on what Chase Card you have, you can almost get a better return than if you had the Marriott Credit Card.

I have the Chase INK Bold which gets 2 UR Points per $1 spent on Hotels.

So by clicking thru Ultimate Rewards to Marriott, I will be getting 5 UR Points per $1 that I spend at Marriott.

This is on top of any points I earn separately at Marriott for actually staying there!

This is pretty huge in my opinion since the Chase Marriott Card gets you 5 Marriott Points per $1 spent at Marriott.

With my Chase INK Bold or Chase Sapphire Preferred, because they both earn 2x on Hotels, I can earn 5 UR Points per $1 spent, which can then be transferred to Marriott at a 1:1 ratio.

Westin & Starwood

The real kicker here though is Westin, and by extension Starwood since on Westin.com you can book any Starwood Property.

Again using your Chase Sapphire or Chase INK Bold, you can get 2 UR Points per $1 spent on Hotels.

By clicking thru the Ultimate Rewards Shopping Mall to Westin.com, you can get another 2 Points per $1 spent at Starwood Properties for a total of 4 UR Points per $1 spent at Starwood Properties.

Since the SPG program and SPG AMEX are 2 separate things, regardless of how you pay for your hotel, as a SPG Member, you would receive 2 Starpoints per $1 spent at SPG Properties.

So in total by doing this, you would earn 4 UR Points per $1 spent at Starwood Properties and then also 2 Starpoints per $1 spent at Starwood Properties as a SPG Member.

If you were to only use your SPG AMEX to book at Westin.com without going thru Chase, you would receive 2 Starpoints per $1 spent at SPG Properties.

When you combine that with being a SPG Member, you would get and additional 2 Starpoints per $1 spent at SPG Properties so 4 Starpoints per $1 spent in total.

Although the SPG AMEX is awesome and I highly recommend you get it, the numbers do not lie.

Instead of only 4 Starpoints per $1 spent with the SPG AMEX, by clicking thru Ultimate Rewards and using your Chase Card you can earn 4 UR Points per $1 spent AND 2 Starpoints per $1 spent!

Therefore I am going to make the startling announcement that it is actually better to use either your Chase Sapphire Preferred or Chase INK BOLD to book stays at Starwood Properties, than use your SPG AMEX!

This is doubly true if the SPG Property you are staying at is located outside the U.S, since the SPG AMEX has Foreign Transaction Fees while the Sapphire Preferred and INK Bold do not!

Using Your SPG AMEX Via Ultimate Rewards

Now I am not 100% sure about this, but from what I have heard, people have received Ultimate Rewards Points for clicking thru the Ultimate Rewards Shopping Mall but then paying with either Gift Cards or non Chase Credit Cards.

I just bought some Bose In-Ear iPhone Headphones via Ultimate Rewards and used a Gift Card to pay half the bill.

I am currently waiting to see if I got the full amount of Ultimate Rewards Points or if I only got Points for the part that I paid with my Chase INK Bold.

If any Readers have any experience or know the answer, feel free to comment.

If what I said above is true, than hypothetically you could click thru the Ultimate Rewards Shopping Mall to Westin and book using your SPG AMEX.

This way you would get 2 Points per $1 spent via Ultimate Rewards, 2 Points per $1 spent at SPG Properties for being a SPG Member, and then an additional 2 Starpoints per $1 spent on your SPG AMEX.

So 4 Starpoints & 2 UR Points per $1 spent at Starwood Properties.

That is pretty awesome!

Recap

Anyway it just goes to show you that there are always extra ways to boost your earning potential. You just have to know where to look!

I know for me personally, going forward, I will definitely be clicking thru Chase’s Ultimate Rewards Shopping Mall for any upcoming hotel stays that I have.

-Parag

How To Avoid Long Airline Call Center Wait Times

I spent the greater part of this Morning on the phone with United’s Reservations Desk booking a pretty cool open jaw European Itinerary complete with a ride on Lufthansa’s A380 (albeit in Economy but it is still the A380, so in the words of Larry David, it is still pretty prettay prettayy good).

The reason I am sharing this information with you guys is because when I first tried to call United’s main Customer Service number to book this Itinerary, I was told there was a 60 minute wait to speak to an attendant.

I decided to pass on that.

Why United just can’t take your phone number down and call you back when an Agent is free, I am not sure.

Personally I hate calling into Call Centers, so if possible I try to do all booking and changes online.

However in this case, because the Itinerary was semi-complex, I had to call it in.

For all 2 of you that used to read my pre-FFU blog way back in 2009, you may remember that I inadvertently caused a semi-riot when I “accidentally” published the phone number to British Airways’ Gold Members Elite line.

The reason I did this was because I got annoyed having to wait 45+ minutes each time I wanted to speak to a BA Agent. Thus I made my own rules and simply did some Googling and found the British Airways Elite Members Phone Number.

The ironic thing, and why people got so angry, is because British Airways never bothered to check the identity of members calling their Elite line.

They figured that if you had the number, it was because you were suppose to have the number.

So whenever I needed to call British Airways, instead of waiting 1 hour for an Agent, I would just call the BA Gold Line and someone would pick up instantly.

Anyways after I published the number, the actual British Airways Elites went nuts saying it wasn’t fair, and in a matter of days, magically the Gold Phone Number changed.

The point of that story is that knowing the right phone number to call, can really make all the difference.

That being said, unfortunately I don’t have any Elite Phones numbers and now typically before they connect you, the Robot Voice asks for your Frequent Flyer Number to verify that you are in fact an Elite.

What I do have though is a fairly useful trick.

If you call into a US based call center and get hit with a long wait time, the trick is to simply call another one of the Airline’s Call Centers in a foreign country where it is past peak hours.

For example, today when I called United’s US Reservation Desk, because it was during the day, the Agents were busy which resulted in a 60+ minute hold time.

So instead of waiting around on the phone for a US based Agent, I simply pulled up United.com’s International Reservation Phone Numbers and looked to see which offices were currently open.

Europe is 7 or so hours ahead making it around evening time there, so I thought I would give them a ring.

So via Skype, I called United’s UK Reservation Desk and within 1 minute I had someone helping me book my reservation!

The most ironic part about having to call United’s UK Reservation Desk?

The Agent that picked up on the other end was definitely based in the US.

So now I am starting to wonder if when the British call United’s UK Reservation Desk and it gets outsourced back to the US, if the British People say “F#$%&ing Americans, I can’t understand a bloody thing they are saying! Why do they have to outsource the calls! I just want someone who speaks proper English!”

This strategy of calling International Offices does not just only apply to United, as I found out while I was reading Twitter during my Phone Booking.

It seems Rapid Travel Chai was having some issues with AA rebooking his Wedding Anniversary flight which AA changed without his consent and his call kept getting dropped by AA.

How To Call International Call Centers For Pennies

While a couple of years ago, it would not be financially feasible to call the UK or Australia and talk for 30 minutes, the rise of Smart Phones and VOIP (aka Skype, Vonage, etc), has made it possible to call anywhere in the entire World for pennies.

The service I use to make cheap International calls is Skype.

It is a free software that you can use on your Smart Phone or straight from your Computer, and as long as you are calling Landline Phones internationally, it is literally pennies per a minute.

Now if you are a true penny pincher, then there are services that are even cheaper, but Skype is a reputable company, you more than likely already have it installed on your computer, and the call quality is pretty good.

Calling An International Call Center

If you speak another language fluently, then you can try calling Spain, Mexico, France, Germany, etc, but if not, it is best to call either Australia, Canada, or the UK, depending on what time it is.

Hopefully they will just route your call back to the US!

Once you have Skype or whatever software you are using to make your call, simply click on any of the Airlines below and pick an International Office.

United International Phone Numbers

American Airlines International Phone Numbers

Delta International Phone Numbers

One thing to keep a look out for, is that some of the Airline Phone Numbers charge you to call them. This seems primarily the case in Europe.

If the International Office you pick does charge you an additional fee, it will be reflected next to the phone number similar to the example I pulled for AA’s UK Office below.

In that event, simply call another office.

Most of the Airlines do show the times their International Offices are open. So double check to make sure the office is open before you call.

If you aren’t sure, you can use this site and it will tell you the current time at the city you are trying to call. The iPhone also has a World Clock that you can use.

When dialing an International Phone Number on Skype or any phone, you have to enter the Plus Sign (+) and then the Country Code before the actual phone number.

The Country Code is typically not provided on the Airline’s website because they figure you are calling from within the Country in the first place.

If you don’t know the Country Code of the International Office you are calling, you can use this free site and it will give you the exact code and format to input it.

So for example, when I called United’s UK Reservation Desk this Morning, in Skype I entered:

+44 (Country Code) – 0845 (Area Code) – 607 – 6760 (Phone Number), so when I dialed it looked liked this +44-0845-607-6760

Some sites will say you have to put 011 before the Country Code to dial outside of the United States, but if you are calling from Skype, you don’t need to put that.

Cost / Benefit

The real beauty in this trick is how much time you can save!

Instead of waiting 45 minutes for a US based Agent, simply by calling Australia or the UK, you can get through in a matter of seconds and they might even route your call back to a US Agent.

Since the cost of Skype is so cheap, even if you call the UK and it takes a full 60 minutes to book your flight, at 2.3 cents a minute, the cost of your call would be a whopping $1.38.

I don’t know about you, but for $1.38, I think that is a steal given the alternative of waiting on the phone for hours!

Honestly I am surprised that this kind of “Priority Phone Center Queueing” or isn’t a benefit they have rolled out on any Airline Credit Cards.

Anyways hopefully this little trick helps everyone avoid the long wait times if you ever find yourself in the unfortunate circumstance where you have to call into a Airline Call Center.

Also if anyone has any Elite Phone Numbers they would like to share and cause another small uproar, feel free to leave a comment ; )

-Parag