For millions of Americans, credit cards are a necessary part of life. It’s how we pay for what we need, but for many individuals, relying on credit cards means they are carrying a credit card balance. In fact, according to NerdWallet’s 2016 American Household Credit Card Debt Study, the average household with a credit card balance totals $16,748.
What you need to know NOW is that if you, too, have a credit card balance, your credit score can be negatively impacted. Why? Your credit score is based on information like payment history, length of credit, and level of debt. If you have a credit card balance, then what you need to know is that level of debt is the second biggest factor in calculating your credit score. So, having a high credit card balance can cost you points.
What you also need to know is that another key factor in determining your score is how close your balance is to your credit limit – or, in other words, your utilization rate. The higher your utilization rate, the more likely your credit score will be negatively impacted. If you can, try to keep your utilization rate below 30%. For example, if your credit limit is $1,000, keep your balance below $300.
So, what can you do? With these three simple steps, you can proactively impact your credit score:
- Pay your bills on time
- Pay more than the minimum
- Keep your utilization rate below 30%
With the right steps, you can build or boost your credit score.