subject: Even If You Pay The Balance, Maxing Out Those Credit Cards Are Hurting Your Credit Score [print this page] Think that paying your credit card balance in full is good for your credit, even if you are using most of your credit limit every month? Think again! You don't get extra points for paying in full, even though it's an intelligent move. Your credit score is based on information in your credit report, and that credit report does not show that you have paid off the balance. What the report does show are monthly balances as reported by creditors.
Even though you may be paying in full, the balance reported for the month on your credit report may not be zilch. The amount on your report will be a reflection of the account balance at the time the lender supplied it to the credit bureaus. If your statement balances gets reported, then the credit score will indicate that you have utilized ninety percent of your available credit! The more the reported balance is in relation to the limit, the worse it will appear.
This is because of the way credit reports are broken down. How much you owe on your accounts makes up thirty percent of your FICO credit score. Utilizing credit that is available on revolving accounts, or "utilization" is an important aspect in this category. Maxing out a credit card can knock a 680 FICO score down 10 to 30 points! Here's the breakdown of your credit report. 35% is comprised of payment history, 30% makes up amounts owed, 15% of your credit score is made up of length of credit history, and 10% is devoted to new credit; the remaining 10% goes to types of credit card.
As you might be painfully aware, you will need a good credit score if you want another card with a higher credit limit or an increase to the limit your currently have. The way to improve your score is to charge less to the credit card you have, and keep on paying off the balance to avoid delving into debt. But what about the damage caused from high balances? That actually won't take too long to erase the damage. Only the most recent balance is a factor, so as soon as you start placing fewer purchases on credit, your score should rise. For a realistic goal, aim for a monthly balance that doesn't exceed thirty percent of the limit. Anything lower than that is cake.
Additionally, look over your credit. Trying to increase your score without knowing where it is in the first place is like trying to blindly hit a Scooby Doo piata with a pixi stick from five feet away. Some good advice would be to look over your credit report through annualcreditreport.com and sort through it for mistakes that could be penalizing your score. Then use the information from it to calculate your FICO score range for free, or pay for your real score at myFico.com or any other score provider.
