How Your Card Balance Affects Your Credit Score

Credit scores can go up or down depending on your credit card balance

One giant arrow points up, another points down
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Your credit card balance is more than just the amount of money you owe to your credit card issuer. Your credit card balances have a direct impact on your credit score. As the credit card balance reported to the credit bureaus changes, your credit score can fluctuate, too.

A Brief Explanation of Credit Scores

Your credit score is like a numeric grade that indicates where your credit history stands at a specific point in time.

The credit score is based on information about your credit card, loan, and other debt accounts listed in your credit report. Things like the account balance, payment history, credit limit, and age of the account are listed on your credit report and used to calculate your credit score. Each factor is given a different weight in calculating your credit score:

  • Payment history counts 35% of your score
  • Level of debt counts 30% of your score
  • Length of credit history is 15% of your score
  • Inquiries and mix of credit are 10% each

What High Balances Mean for Your Credit Score

Level of debt, the second biggest factor that affects your credit score, is sometimes referred to as your credit utilization – the amount of your credit card balances compared to your credit limits. A lower credit utilization is better because it demonstrates you can responsibly use credit. So, having lower credit card balances compared to your credit card limits will reward you with higher credit scores.

On the other hand, higher credit card balances will cost credit score points.

What’s a good balance to have? The absolute best balance is $0. Unless you never use your credit card, it will be impossible to keep a $0 balance on your credit card at all times. You'd essentially have to pay off your credit card balance the same day you make purchases - or at least before the account statement closing date when many credit card issuers report credit card details to the credit bureaus.

It’s more reasonable to keep your balance at or below 30% of your credit limit. That means your credit card balance should always be below $300 on a credit card with a $1,000 limit.

Once your balance starts to exceed the 30% threshold, you’ll notice your credit score decreasing. If you habitually max out your credit cards, your credit score could drop significantly.

Are There High Balance Loopholes?

Can you get away with charging more than 30% of your credit limit if you pay the balance down when your statement comes? Maybe, maybe not. If your credit card reports the balance before you have a chance to pay it down, that’s the balance that will be considered when your credit score is calculated. That higher balance will remain on your credit report until the credit card company reports a new, lower balance.

Your credit report still lists a “high balance” which is the highest balance ever charged on your card. Any creditor or lender who views your credit report will know you once had a high balance on your credit card. Though they can tell whether you paid the bill on time or not, they can’t tell how quickly you repaid the balance. So, when it comes to a manual review of your credit report, the fact that you paid the balance when the bill came might not matter.