Credit Card Balances and Credit Scores
Credit Card proportionate balances are integral when it comes to your credit score. Credit bureaus consider all open credit credit cards balances combined as one large total. Then, the total balance is compared to the high limit for all open credit cards combined. The lower the total combined balance of all open credit cards combined is related to the combined high limit of all open credit cards the better.
The reasoning behind this methodology is that presumably, a consumer has 2 primary benefits when their credit card proportionately balance is low:
1. They are liquid: in case of a cash flow/employment emergency, the consumer could turn to their credit cards to continue to meet their financial obligations.
2. Their obligations are lower: if they have low credit card balances then the monthly payments associated with each credit card is lower leaving the consumer with less debt.
How to Optimize Credit Scores Related to Credit Cards
The ideal with regard to credit scores when it comes to credit cards is low proportionate balances. That means that the outanding dollar amount owed is as far away from the allowed high limit of each card as possible. How do you achieve that:
1. Balances: Pay your credit card balances down
2. High Limits: Request an increase in your high limit with each credit card company (or as needed)
It’s that simple! Now, it is important to recognize that other factors related to your credit cards (such as age of account, payment history and number/type of credit cards open) also impact one’s credit score relative to credit cards.
By Jeremy House