Will having a large credit card balance hurt your credit score?

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In many cases, yes, this high balance affects your score.

Key points

  • Credit usage is an important factor in calculating a credit score.
  • If you owe a lot of money on your cards, your score could suffer, even if you make your minimum payments on time.

There are many reasons why you might have a large balance on your credit card. Maybe you’ve lost track of your spending or have holiday debt. Or maybe the rising cost of living has forced you to fall back on your credit cards (if that’s the case, you’re not alone).

Whatever your reason for having credit card debt, you need to understand the impact a larger balance can have on your finances. Too much of a balance could hurt your credit score, even if you’re able to make your minimum payments on time.

It’s all about use

Your payment history, which shows how quickly you pay your bills, is the most important factor in determining your credit score. It is therefore important to pay your credit card bills on time each month.

If you make your minimum payments but carry over a balance, you’re considered current on that debt — a good thing. The problem with too high a balance, however, is that it can further increase your credit utilization rate.

Your credit utilization ratio is a measure of how much of your available revolving credit you are using. And it’s the second most important factor in calculating your credit score, right behind your payment history.

Once your credit utilization rate exceeds 30%, your credit score may drop. And too large a credit card balance could lead to this. Suppose you owe $5,000 on your credit cards. If your total spending limit available across all your cards is $20,000, then from a credit score perspective, you’re not in bad shape at 25% utilization.

But if you owe $5,000 against a total spending limit of $10,000 on all of your credit cards, that’s a 50% credit utilization rate. That’s way above that 30% threshold, and that’s enough to cause serious credit rating damage.

How to lower your credit utilization rate

If you have a large credit card balance compared to your credit limit, you can reduce it and your usage will decrease. But there’s another tactic you can use: ask your credit card issuers for a spending limit increase. This can work if you’ve made your minimum payments and have had an account in good standing for a few years.

Going back to our example, let’s say you increase your credit limit from $10,000 to $18,000 on all of your cards. In this case, a balance of $5,000 leaves you with a credit utilization rate of around 28%, which could increase your credit score.

Of course, getting such a credit limit increase may not be easy. But it’s worth a try. At the same time, it pays to reduce your debt as quickly as possible, whether it’s cutting your expenses to free up cash or boosting your income with a side gig. Credit card debt is worth eliminating regardless of its impact on your credit score, so the sooner you can eliminate yours, the better.

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