Credit score factor “proportion of balances too high,” with virtually no balances

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Credit Advice

Topics addressed on February 19, 2010:

Credit score factor “proportion of balances too high,” with virtually no balances

Dear Experian,

How did I get the comment “proportion of loan balances to loan amounts is too high” when all I have is a car loan with nine payments left on a 60-month loan and only owe about 15 percent of the loan amount?


Dear SKN,

The comment is a risk factor statement specific to the credit score you received. The statement describes the part of your credit history that is most affecting the score. There is a menu of risk factor statements for each particular credit score and the top four or five are provided each time a score is requested.

There are two important things to understand about the statements. First, they always sound negative, and second, the impact on the score is relative to the score you received.

Risk factor statements represent the things that are having the greatest negative effect on the credit score. For that reason, they always sound bad, even when you have a terrific credit history. So, don’t let the negative tone of the statement bother you. Even though the balance is the thing that is most affecting the score, it doesn’t mean its having a huge impact in terms of points.

Because there is only a limited number of statements for any given credit score, it’s quite possible for two people with very different credit scores to receive the same statement. I’ll use your example, “proportion of loan balances to loan amounts is too high,” to illustrate what I mean.

I suspect you received a very good credit score which was lowered a few points because of the car loan balance. If you owe any debt, that adds to your risk position. As you pay off the balance, your credit score will likely increase very little because the debt wasn’t’ significant and there is only a little room for improvement.

As they say, the closer you are to perfection, the harder it is to improve.

On the other hand, a person who has three new loans and has made only one or two payments on each could receive the same risk factor statement, but in terms of the score, it would likely mean something quite different.

Because the balances are very high compared to the loan amounts, the same statement would represent a far larger number of points. Reducing the balances owed would, therefore, likely result in a much greater improvement in the score.

A small change can make a big difference when there is a lot of room for improvement.

So, when you look at your risk factors, keep in mind that the number of points they represent is relative to your score. And, no matter how good your score, the factors highlight any potential risk, however small.

Thanks for asking.

- The ”Ask Experian“ team
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