Credit Card Balance – How much do you need to pay off
How much of a credit card balance can you carry without effecting your credit score? The answer may shock you. It is a lot lower than many people carry on their cards.
So how much can you keep? Just 9% of your total limit. 10% or more will effect your score. This is by the card, not of all your available credit cards. If you have a $20,000 card you can keep up to $1800 on that. But if you have $20,000 total on several cards, with one card which has a $2000 limit on it which you carry the $1800 your utilization ratio is well over 9%.
Your utilization ratio is a major part of your score, it shows lenders how prepared you are. The lower the number the less you are leaning on credit and able to weather a storm should one effect your ability to pay. This utilization ratio is why many who think they have great credit “they pay their bills on time” actually just have okay credit. According the Wikipedia article on credit scores, 35% of a credit score is based on utilization. With 850 as a maximum score, this could swing a score as much as 175 points.
You may have reasons that you wish or need to carry a larger balance. But be aware that it will affect your credit rating. Obviously, the larger the percentage of your credit limit that you utilize, the more it affects your score. You might be saving with a 0% offer on a credit card, sure the rate is great. How is that balance effecting your score and your over all credit rating?
The great thing about utilization ratio and how it effects your score. You can fix it quickly, provided you have the money to pay down the bill. It isn’t like a late payment which stays on your credit report for years. Simply pay down the balance and as soon as that creditor updates the credit bureaus it will increase your score. There is no “memory” on what your balance was last month.
Check out these other articles 6 Ways a Low Credit Score Will Cost You, I Have Errors On My Credit Report, Now What.
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