Credit Card Balances
 
One of the biggest factors affecting your FICO credit scores is your credit card debt—counting for 30%.  It is referred to as debt utilization and is calculated by taking the balance on a credit card and dividing it by the limit on the credit card.  For example, if you have a balance of $500 and limit of $1000, your debt utilization ratio is 50%. 
 
This is pretty simple and easy to understand, but there seems to be some confusion to those that use the card consistently every month and pay the balance off completely at the end of each billing cycle.  Even though the balance is paid off fully every month, debt utilization MAY still have a negative impact on your credit scores…
 
Most credit card companies will report consumer balances once a month to the credit reporting agencies (TransUnion, Experian, and Equifax).  What needs to be understood is that the billing cycle and reporting date are most likely different.  Therefore, any use of a credit card after the billing cycle period has ended but before the reporting date will be posted on your credit report and calculated into your credit score.  For example, if you make a credit card payment on the 15th of the month and the credit card issuer reports on the 30th of the month, any purchases made between the end of the previous month’s billing cycle and the 30th will be reported to the credit reporting agencies and used to calculate your debt utilization ratio.
 
For this reason, it is a good idea to get into the habit of only using your credit cards for nominal monthly purchases, trying not to exceed 10% of the card limit.  Lower balances are always better.  Credit scores are calculated by taking a “snapshot” of your credit report, using the information at that particular moment in time.  By getting into the habit of only using a small portion of your available credit, you will be sure that your debt utilization ratio is helping to increase your credit scores, not hurting them.
 
As a credit expert, I provide credit education helping people understand how to build and improve their credit scores.  If you, or someone you know, is having issues with credit, contact me to find out how I can help.
 
Kevin D. Weier

Credit Coach, LLC ·  Three Point Place, Madison, WI  53719
Phone: (608) 268-6677 · Cell: (608) 774-2434 · FAX: (866) 311-7478
Web: www.creditcoachwi.com · Email: [email protected]