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What is a Credit Limit?

Dear Experian,

I received my credit score. It says “amount of revolving credit card balances is too high,” but I do not owe anything. How do I clear the revolving credit limit from my credit report?

– QSN

Dear QSN,

Revolving accounts, such as credit cards, are usually assigned a credit limit by the issuer. The credit limit on an account is the maximum amount you are allowed to charge on that particular account. Once you have paid down the balance, you are free to charge again, up to the limit on the account.

But, just because you can charge to the limit doesn’t mean you should. When a credit card account is reported to Experian, both the balance and the credit limit on the account are listed, so you cannot clear the credit limit from your report.

Credit grantors update the balance and payment information on their accounts at various times throughout the month. Each account on your credit report will reflect what the balance was at the time of the last update from the creditor, even if you paid off the balance in full later in the month.

Your credit report is a snapshot of each account at the moment it was last reported to Experian.

Factors Affecting your Credit Score

When you order a credit score from Experian, you will receive number along with a list of the factors that are currently affecting your score. This list will help you understand what actions are impacting your credit scores, and what you can do to improve them.

“Amount of revolving credit card balances too high” indicates that the total amount of credit card balances currently reflected on your credit report is affecting your credit score negatively. If you have already paid off your credit card balances, the new balances will be reported by your creditors the next time they update, usually the next billing cycle.

How Credit Utilization Rate Impacts Credit Scores

Your credit utilization rate, otherwise known as your balance-to-limit ratio, is the relationship between the total balances on each of your revolving accounts and the total of your credit card limits on those accounts. A high utilization rate can negatively impact your credit rating.

In fact, high utilization is usually the second most important factor in credit scores, right behind payment history. Paying your bills on time and keeping your balances low are the two key things you must do to have good credit scores.

The higher your credit card balances, the higher your utilization rate will be, so keeping all your credit card balances low is best for your credit scores.

How to Avoid “Amount of Revolving Credit Card Balances is Too High”

As a rule of thumb, your balances should never be more than 30 percent of your credit limits. That’s a maximum. The lower your balances, the better for your credit scores. People with the best credit scores typically have utilization rates of less than 10 percent. Zero is the best.

Ideally, you should pay your balances in full each month. Doing so is good for your credit scores and will help you avoid paying interest on your credit card purchases. So it saves you money, too!

Thank you for asking,

The “Ask Experian” Team

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