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Credit Card Basics

How Do My Credit Card Balances Affect Me?

Dear Experian,

Are credit scores impacted by your overall credit card balance, or your per-card balance?

- AFO

Dear AFO,

Lenders look at both the individual credit utilization rate, or balance-to-limit ratio, of each credit card as well as your overall utilization rate, which is the total of your revolving account balances relative to your total credit limits. Maxing out one credit card is a sign of risk to a creditor, even if your other cards have no balance. But credit scoring models consider overall utilization when calculating your credit score.

Why Do Your Credit Card Balances Matter?

Payment history is the most important factor in credit scoring, but your utilization rate is a close second. Experts recommend keeping your utilization rate below 30%, but below 10% is even better. Even if you make all your payments on time, growing credit card balances will increase your utilization rate, which can hurt your scores.

Credit card accounts offer lenders a lot of insight into your financial habits because of the freedom they offer. You make decisions each month about how much to charge and how much to repay. When lenders see you carry high balances on credit cards relative to your limit, they view it as a sign of risk because it may indicate financial distress.

It's Best to Pay in Full Each Month

Responsible use of credit cards is good for credit scores, so it's a good idea to keep your cards open and active by making small charges each month. Ideally, you should pay the balance in full each billing cycle. Not only will doing this keep your utilization rate low, but you'll also avoid accumulating debt and paying interest, which is good for your budget.

Know Your Risk Factors

If you're unsure whether your revolving account balances are impacting you negatively, consider ordering your free credit score from Experian. Not only will you get your score, but you will also get a list of your top risk factors based on the information in your credit history at that moment. If your credit card balances are hurting you, you will see it listed here. Knowing these risk factors empowers you to make changes that will help you improve your scores going forward.

Thanks for asking,
Jennifer White, Consumer Education Specialist

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