Will Carrying a Large Credit Card Balance Hurt Your Credit Score?

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  • Credit utilization is a big factor in calculating a credit score.
  • If you owe a lot of money on your cards, your score could take a hit -- even if you're making your minimum payments on time.

In many cases, yes, that high balance affects your score.

There are many reasons you might have a large credit card balance. Maybe you lost track of spending, or have debt from the holidays. Or maybe rising living costs have forced you to fall back on using your credit cards (if so, you're not alone).

Regardless of why you have credit card debt, you should understand the impact a larger balance can have on your finances. Too large a balance could cause damage to your credit score -- even if you're able to make your minimum payments on time.

It's all about utilization

Your payment history, which speaks to how timely you are with bills, is the most important factor in determining your credit score. And so it's important to pay your credit card bills on time every month.

If you make your minimum payments but carry a balance forward, you're considered current on that debt -- a good thing. The problem with carrying too high a balance, though, is that it can still drive up your credit utilization ratio.

Your credit utilization ratio is a measure of how much of your available revolving credit you're using. And it's the second-biggest factor in calculating your credit score, right behind your payment history.

Once your credit utilization ratio exceeds 30%, your credit score can drop. And too large a credit card balance could lead to that. Let's assume you owe $5,000 on your credit cards. If your total available spending limit across all your cards is $20,000, then from a credit score perspective, you're not in bad shape at 25% utilization.

But if you owe $5,000 against a total spending limit of $10,000 across all of your credit cards, that's a credit utilization ratio of 50%. That's well above that 30% threshold, and it's enough to cause serious credit score damage.

How to lower your credit utilization ratio

If you're carrying a large credit card balance relative to your credit limit, you can whittle it down, and your utilization will shrink. But there's another tactic you can employ -- asking your credit card issuers for a spending limit increase. This may work if you've made your minimum payments and have been an account holder in good standing for a few years.

Going back to our example, let's imagine you raise your credit limit from $10,000 to $18,000 across all your cards. In that case, a $5,000 balance leaves you with a credit utilization ratio of about 28%, which could boost your credit score.

Of course, getting that much of a credit limit increase may not be easy. But it's worth trying. At the same time, it pays to chip away at your debt as quickly as possible, whether that means cutting back on spending to free up cash, or boosting your income with a side gig. Credit card debt is worth getting rid of regardless of its impact on your credit score, so the sooner you can eliminate yours, the better.

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