The second largest factor in your credit scores is the amount you owe in relation to your high credit limits.
If you are carrying high credit card balances, they can actually hurt your credit scores almost as much as paying the account late every month. This is because if you go late they affect 35% of your score that relates to payment history, but if they use a high percentage of your available credit they affect 30% of your scores.
This is why you should get approved for new credit, especially credit cards with decent credit limits even if they are secured.
This aspect of consumer credit score has several different factors. The first factor is your relation of balances you owe on all of your accounts in relation to the high credit limits on those accounts. Once again, this takes into consideration balances on all of your accounts combined. Your credit score also takes into account balances in relation to high credit limits on your individual accounts.
For example, a consumer will be scored higher if they owe 30% or less on their credit card accounts. This means if they have a high credit limit of $1,000, they will have a higher score if they maintain a balance of $300 or less.
For revolving accounts, such as credit cards, you want to keep the smallest balances while still keeping a balance. You shouldn’t pay the account to 0, and not use it. If they stop using the account your credit score is not increasing. Be sure to pay it as close to 1% as you can, but make sure you keep your balances below 30%.
Your scores will also be lower due to higher balances on installment loans, car loans, mortgages, and other non-revolving accounts. This is why credit scores will always be immediately lower if you open any of these accounts new. A new car loan, for example, will lower their scores once it goes on your report. How much lower depends on your spread of other accounts.
As loans and mortgages are paid down over time, your scores will steadily increase. This is why one of the best things anyone can do for your credit is open accounts and pay them as agreed. Tell them to not pay those accounts to 0 too quick as you won’t be getting credit for paying that on time each month if that account if you have no balance and no payments due.
As a reminder, your score will be affected by how many open accounts have balances, how much of your total credit lines are being used, and how much of a balance you have on installment loans, such as car loans.
You can improve your credit scores by maintaining lower balances on your accounts or spreading balances over several different accounts. You can also get approved for new high-limit accounts to increase your scores.
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