One of the most important factors in determining credit scores is utilization.
And by utilization, I mean the amount of credit you are using versus that which is available.
For example, if you’ve got a credit card with a $10,000 credit limit, and a credit card balance of $5,000, you’d be utilizing 50%.
While this is pretty simple stuff, knowing that right amount of utilization is a little less obvious.
Both Fico score and VantageScore rely heavily on things like credit card balances, with “amounts owed” accounting for 30% of the former’s scoring algorithm, and utilization, available credit and outstanding balances accounting for 33% of the latter’s.
So in short, roughly one third of your credit score is based on how much credit you’re actually using.
But just how much is good and bad for your credit score?
While there’s no clear answer, VantageScore recently noted in a newsletter that “if a consumer must keep a balance its best to keep it under 30 percent.”
And if you’re paying interest on those credit card balances, the damage is two-fold.