Your credit score is one of the most important numbers in your financial life. It can determine whether or not you get approved for a loan, what interest rates you qualify for, and even impact your ability to rent an apartment or get a job. One of the key factors that goes into determining your credit score is your credit card balances. Specifically, carrying a large credit card balance can harm your credit score.
When lenders look at your credit score, they want to see that you are responsible with your credit. One way they measure this is by looking at your credit utilization ratio, which is the amount of credit you are using compared to the amount of credit available to you. The lower your credit utilization ratio, the better. Ideally, you should aim to keep your credit utilization ratio below 30%.
For example, if you have a credit card with a $10,000 limit and you are carrying a balance of $3,000, your credit utilization ratio is 30%. If you can pay off some of that balance and lower your ratio, your credit score will improve.
The higher your credit utilization ratio, the more it will hurt your credit score. In fact, high credit card balances are one of the biggest reasons that people’s credit scores drop.
Also, when you carry a large credit card balance, you may find yourself paying more in interest charges. Even if you make your monthly payments on time, the interest charges can add up and make it harder to pay off your balance.
In order to maintain a good credit score, you should avoid carrying large credit card balances. Instead, aim to keep your credit utilization ratio below 30%. Paying your balances in full each month is the best way to keep your credit utilization ratio low, and improve your credit score.
It is also important to keep in mind that the longer the outstanding balance is on your credit card, the more it will affect your credit score negatively. If you can’t pay off your balance in full, try to at least make more than the minimum payment to bring down the balance.
In conclusion, carrying a large credit card balance can harm your credit score. It is important to keep your credit utilization ratio low and avoid carrying high credit card balances. This will not only help maintain a good credit score but also save you from high interest charges.