Why People With Good Credit Scores Have the Most Credit Card Debt

by Lyle Daly | Updated July 21, 2021 - First published on Sept. 5, 2020

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Can a better credit score put you at more risk of credit card debt?

You might think that consumers with higher credit scores have less credit card debt. After all, your credit score is considered a measure of your creditworthiness and indicates the likelihood you'll pay back any money you borrow. By those standards, it would be easy to assume that average credit card debt would go down among groups with better credit.

When we looked at credit card debt statistics in 2020, we discovered that better credit doesn't always correspond to less credit card debt. As you'll read, a good credit score can increase the odds of overspending.

The relationship between credit scores and credit card debt

There are five credit score ranges, starting with poor credit and ending with exceptional credit. Here's the average credit card debt for each score range as of the second quarter of 2019:

  • Poor (300-579): $3,446
  • Fair (580-669): $6,489
  • Good (670-739): $9,712
  • Great (740-799): $6,051
  • Exceptional (800-850): $3,616

Consumers with the lowest credit scores actually have the least credit card debt. The average debt amount then rises quite a bit, peaking at almost $10,000 for consumers with good credit, and finally declines for those with great and exceptional credit scores.

How good credit can lead to more debt

The biggest reason why consumers with good credit have more debt is they have more access to credit. When you have a poor credit score, it's harder to get approved for credit cards. Even if you do manage to get approved, the card issuer will probably start you off with a small credit limit, such as $500 to $1,000. It's the same for consumers with fair credit, just to a lesser extent. In both cases, your credit score keeps you from getting too much credit and being able to rack up lots of debt.

Everything changes once you have good credit. At that point, you'll be able to qualify for many of the top credit cards and get much higher credit limits, such as $5,000, $10,000, or potentially much more. That kind of spending power makes it tempting to start purchasing more and carrying larger balances.

As we touched on earlier, credit card debt drops for consumers with great and exceptional credit. What changes for them, considering that they typically have even more credit card opportunities than those with good credit?

For a start, the consumers who reach those credit score ranges tend to be those who are the most responsible with their credit. That includes not overspending or carrying around lots of credit card debt. Plus, carrying too much credit card debt can result in a high credit utilization ratio, which is one of the most important factors in determining your credit score. The consumers with the most credit card debt could end up stuck in the good credit range precisely because their credit utilization is too high.

Avoiding the good credit trap

It's great to reach the milestone of having good credit, but it also carries new challenges. You could have much more credit at your disposal, and that makes it easy to overspend.

Fortunately, there's one simple rule to follow so that you don't fall into this trap. Make your spending decisions based on your budget, not your credit limit. It's smart to aim to pay off your credit card bill in full every month. If you do that, you'll stay out of credit card debt. You'll also keep your credit utilization low, which will help you make your good credit score even better.

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