Consumers who are concerned about keeping their credit scores as high as possible should understand the impact using a credit card has. How much you spend with your card and how high a balance you carry from month to month have an impact on your credit score and your ability to obtain new loans and better loan terms.
Credit Score Factors
Your credit score is based on a number of factors, one of which -- the amount of money you owe -- makes up about 30 percent of your credit score. In general, the lower amount of credit card debt you have, the higher your credit score will be. This factor alone does not determine how high your credit score is, however, and factors such as your payment history, length of your credit history, number of new credit items or applications and the variety of credit you use are also important.
Credit Utilization
Every credit card has a credit limit, and when you carry a balance on your card, you utilize a percentage of that limit, known as a credit utilization ratio. In general, creditors prefer that you utilize no more than between 30 and 35 percent of your credit limit on any card, according to Bankrate. For example, if you have a $10,000 credit limit, you should keep your balances below about $3,500, and preferably below $3,000. A high credit utilization ratio tends to hurt your credit score.
Balances and Spending
Credit scoring companies consider the credit utilization ratio of each of your credit cards, though that doesn't mean they look at how much you use the card. For example, if you have a card with a $5,000 balance and charge $4,000 on it in one month, that doesn't mean you have an 80 percent utilization ratio for that card. As long as you can pay off the balance to get it below the 30 to 35 percent range at any given time, your utilization ratio does not increase.
Credit Limit
As your utilization ratio is a percentage of your credit limit, knowing how much you can charge on your card is key. If you know you are going to carry a higher percentage balance on your card for some time, you might consider requesting a credit limit increase. In general, credit card companies determine a card's credit limit based on the user's income and credit score, but they won't often increase the limit unless you request them to do so.
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