How Your Card Balance Affects Your Credit Score

Credit Scores Can Go up or Down Depending on Your Credit Card Balance

Two arrows representing credit card balances going up and down

Andy Ryan / Creative RF / Getty Images

Your credit card balance is more than just the amount of money you owe to your credit card issuer. Your credit card balances directly impact your credit score and, ultimately, whether you're able to get approved for a new credit card or a loan. As the credit card balance reported to the credit bureaus fluctuates, so too will your credit score.

Credit Scores Basics

Your credit score is like a numeric grade that indicates your creditworthiness at a specific point in time. There are several ways you can get your credit score, most of them free.

Your credit score is based on information in your credit history, including credit cards, loans, and other debt accounts listed on your credit report. Information like the account balance, payment history, credit limit, and the account's age is listed on your credit report and used to calculate your credit score.

Each factor is given a different weighting in calculating your credit score. These key factors affect your credit score, and their importance represented as a percentage:

  • Payment history accounts for 35%.
  • Total amount of debt and the outstanding debt versus your credit limits accounts for 30%.
  • Length of credit history accounts for 15%.
  • Credit inquiries and your types of debt called credit mix account for 10%, respectively.

What High Balances Mean for Your Credit Score

The level of debt, the second most significant factor that affects your credit score, is referred to as your credit utilization, which is your credit card balances compared to your credit limits. Lower credit utilization is better because it demonstrates you can responsibly use credit and that you haven't overextended yourself with high credit card balances. Thus, having lower credit card balances than your credit card limits will reward you with higher credit scores. The opposite is also true. Higher credit card balances will lower your credit score.

What's a Good Credit Card Balance?

The absolute best balance is $0, but unless you never use your credit card, it will be impossible to maintain a zero balance on your credit card. 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 to obtain such a lofty goal.

If you want to improve and maintain a good credit score, it’s more reasonable to keep your balance at or below 30% of your credit limit. For example, 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.

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? It depends. If your credit card reports the balance before you have a chance to pay it down, that balance 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.

Though it isn't included in your credit score, your credit report still lists a “high balance,” which is the highest balance ever charged. 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, they don't know how quickly you repaid the balance.

However, creditors will review your payment history and whether there are any late payments, which can hurt your credit score. While paying down the balance is essential, paying at least the minimum payment each month to avoid late fees can help you maintain a solid credit score.