Credit Card Balances Can Affect Your Credit Scores By Up To 120 Points.
YOUR UTILIZATION RATIO AFFECTS YOUR SCORES
WHAT IS UTILIZATION RATIO?
Your utilization ratio shows how much of your available credit you are using. The utilization ratio is viewed as a percentage.
CALCULATE YOUR UTILIZATION RATIO
Take your [TOTAL CREDIT CARD BALANCES] and divide that by your [TOTAL CREDIT CARD LIMITS]. This will give you a decimal number. Move the decimal to the right 2 numbers and you’ll have your Utilization Ratio Percentage.
BIG BALANCES ON NEW CARDS
Balances on new cards are treated as new debt. A new card with larger debt means more risk, and a bigger score reduction (up to 50 points). So, keep your new card balances low. As your account ages, the balance won’t be considered a new risk anymore.
CARD BALANCES ON YOUR CREDIT REPORT
Credit card companies report your card balance owed on the statement date. So, if you want to show a lower balance on your credit report, pay it down before the statement date.
Statement dates typically are based on the day of the month you opened the credit card account. So, each card will have a different statement date.
HIGHER RATIOS – BIGGER IMPACT
As your utilization ratio increases, the score reduction is greater in a compounding way. For example, going from a 35% to 50% ratio (a 15% increase) might reduce your scores by 30 points, while going form a 50% to 65% ratio (a 15% increase) might reduce your scores by an additional 45 points. The impact on your scores is greater at higher ratios.
GreenBayGreg of Dellaire Realty interviews the president of Credit Matters, Dan Krueger, to discuss the basics of credit repair and credit scoring.