DID YOU KNOW: Keeping high balances on credit cards for long periods of time can significantly impact your credit scores?

Date: June 22, 2020
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Did You Know?

With the holiday season now over, it’s time to pay the piper. Many consumers ratcheted up their usage of credit cards to purchase gifts for their friends and family, and now are faced with large balances.

Indeed, according to TransUnion, one of the three national credit reporting companies, credit card debt per borrower, which has been relatively low since 2010, is expected to rise to the highest level since 2009.

Consumers need to know that carrying high balances over time can drive down their credit scores. VantageScore Solutions recommends keeping credit card balances below 30 percent of the credit card’s maximum balance.

For a consumer with a very high credit score, using up the entire balance of a credit card causes their score to drop by 90 to 110 points. For someone with a lower score, the drop can be between 55 to 75 points.

The good news is that a consumer’s score can bounce back relatively quickly after reducing their balance. Typically two months after paying down a very high credit card balance to below 30 percent of the total credit line, a consumer’s score will rebound to its original score.

The message for consumers is to try to pay down balances as soon as possible. Typically lenders report payment and debt information to the three CRCs on a monthly basis, so credit card payments and reduced balances will be factored into a consumer’s credit score relatively quickly.

And regardless of whether being a better credit manager is part of their New Year’s resolution, all consumers can benefit from taking the Credit Score Quiz.