We speak to a lot of people who have never missed a payment in their life but for some reason their Credit Score stays low. In almost all cases it is because they have high balances. With high balances you are affecting the second largest portion of your credit score; you Credit Utilization Ratio.
What Is Credit Utilization Ratio?
Your Credit Utilization Ratio refers to how much available credit you are using. Let’s say you have a credit card with a $10,000 spending limit and you have spent $5,000 of that. That means your Credit Utilization Ratio is at 50%. What most experts recommend is never having balances above 30% of your limits and ideally under 10%.
How Does Credit Utilization Affect My Score?
The Credit Utilization Ratio is second largest portion of your credit score at a whopping 30%. This is just barely smaller than your payment history at 35%. You can see how just how important it is to keep your balances low. We have found that clients who have high ratios close to maxing out can see their scores rise over 100 points or more just by paying down their balances.
What Is The Best Way To Pay Down My Balances?
The best way to pay down your balances is first to stop adding to them. This means to stop using your credit cards until your credit score is where it needs to be. Notice we didn’t say to cancel your cards. Keep your cards open because canceling the cards can actually hurt your score. The next thing you need to do is start paying more than the minimum payments. Focus all the extra money you can on this card with the highest interest rate and pay that one off first. Once that is done move on to the next one until you have your balances below 10% and then check your credit score and you will see a huge improvement.
If you need to speak to someone about your Credit Score or know what you have any other issues on your reports like collections or late payments then call us today and speak to a Credit Expert. 888.799.7267