A Brief Explanation of Credit ScoresYour credit score is like a numeric grade that indicates where your credit history stands at a specific point in time.
- December 20, 2016
- Posted by Get That Bike Loan
- Comments Off on A Brief Explanation of Credit Scores
Your credit card balance is more than just the amount of money you owe to your credit card issuer. Your credit card balances have a direct impact on your credit score. As the credit card balance updated on your credit report changes, your credit score can fluctuate, too.
A Brief Explanation of Credit Scores
Your credit score is like a numeric grade that indicates where your credit history stands at a specific point in time.
- Payment history counts 35% of your score
- Level of debt counts 30% of your score
- Length of credit history is 15% of your score
- Inquiries and mix of credit are 10% each
Level of debt, the second biggest factor that affects your credit score, is sometimes referred to as your credit utilization – the amount your balances compared to your credit limits. A lower credit utilization is better because it demonstrates you can responsibly use credit. So, having lower credit card balances will reward you with higher credit scores.
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.
Can you get away with charging more than 30% of your credit limit if you pay the balance down when your statement comes? Maybe, maybe not. If your credit card reports the balance before you have a chance to pay it down, that’s the balance that 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.