When applying for a loan, your credit score plays a crucial role in determining both approval and interest rates. Lenders assess your score to gauge your creditworthiness, and a higher score often translates to lower borrowing costs.

For example, if you’re applying for a $30,000 auto loan with a 60-month term, having a credit score of 720 or higher could secure you an interest rate of 7.5%. However, if your score drops to 650, your rate may climb to 12.7%, costing you an additional $4,576 in total interest.

Fortunately, there’s a quick and effective way to boost your credit score—reducing your credit utilization ratio.

Understanding Credit Utilization and Its Impact

Credit utilization refers to the percentage of your available credit that you’re currently using. It’s calculated by dividing your total credit card balances by your total credit limits. This ratio updates monthly when credit card issuers report your balances to credit bureaus.

For instance, if you have a credit balance of $8,000 on a card with a $10,000 limit, your credit utilization is 80%. High utilization signals risk to lenders and can significantly lower your credit score. Ideally, you should keep this ratio below 30% to maintain a healthy credit profile.

The impact of high utilization varies, but exceeding 50% can cause a score drop of 25 to 32 points—enough to move you into a lower credit tier and increase your loan costs. On the flip side, reducing your utilization can raise your score by a similar margin in just a month.

How to Lower Your Credit Utilization Quickly

If your credit utilization is high, addressing it before applying for a loan can improve your chances of securing a lower interest rate. Here are three strategies to achieve this:

1. Pay Down Your Balances

Reducing your outstanding credit card debt is the most effective way to lower your utilization ratio. If possible, use extra savings or a bonus to pay down your balances before applying for a loan. This not only boosts your credit score but also saves you money on interest payments over time.

2. Request a Credit Limit Increase

Another way to improve your credit utilization ratio is by increasing your credit limit. If your balance remains the same but your available credit increases, your utilization drops, leading to a higher credit score.

Most credit card issuers allow customers to request a limit increase online or via phone. If you have a strong payment history, your request is likely to be approved. For example, if your total credit limit is $10,000 with a $6,000 balance, increasing your limit to $15,000 reduces your utilization from 60% to 40%.

3. Make More Frequent Payments

Since credit utilization is reported at a specific time each month, making multiple payments throughout the billing cycle can help keep your reported balance low. Paying off large purchases before the statement closing date ensures that a lower balance is reflected when your issuer reports to the credit bureaus.

Additionally, contacting your credit card provider to find out when they report utilization allows you to time payments strategically.

The Fast Track to a Better Loan Deal

Many credit score factors, such as payment history and credit age, take time to improve. However, credit utilization is one of the few areas that can change in a matter of weeks. By strategically reducing your utilization, you can quickly boost your credit score, qualify for lower interest rates, and save thousands on your next loan.

Before applying for any credit product—whether a mortgage, auto loan, or personal loan—consider optimizing your credit utilization. This simple yet effective move can make a significant difference in your financial future.