Can High Balances on My Credit Cards Hurt My Credit Score?

Consumers often focus on paying their monthly minimum payment when carrying a high balance can be more damaging to a credit score. If you use most of your credit card limit, you should do what you can to eliminate as much of the balance as possible. You may not be able to avoid the impact of a high credit card balance without paying off any debt.

Identification

A high balance on your credit card damages your credit rating because it leads to a high credit utilization ratio, or percent of credit limit available. You should not use more than 36 percent of your credit limit, and ideally keep credit utilization below 10 percent. Also, a high balance adds debt to your credit history. Amounts owed counts for 30 percent of a credit score, according to the Fair Isaac Corporation.

Other Damage

The FICO scoring system also considers the balance history on your credit cards. Frequently maxing out a credit card or keeping a high balance month to month damages your credit rating. Paying off balances every month tends to raise your credit rating. Creditors report the balance on the billing statement to the credit bureaus, so you must keep your balance low through the entire month.

Considerations

A high credit card balance usually means you cannot afford to pay for your lifestyle. If a sudden disaster strikes, such as unemployment or a sudden medical emergency, your level of debt can become unmanageable if other obligations eat up your disposable income. Missed payments or worse, a charge-off or collection account, can damage your score by more than 100 points.

Tip

Pay as much over the minimum monthly charge as possible each month. Also, call the credit card company about lowering your interest rate. You can cite other credit card offers you receive to gain leverage. You can also ask for a limit increase on your account. A higher credit limit lowers the percent of your limit you use -- assuming you do not make more charges to your account. Ask the creditor if it requires a credit inquiry to consider a limit increase. The damage from a credit inquiry can cost up to five points on your credit rating.