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How Long Will a High Balance Hurt My Credit Score?

A credit score penalty for high credit utilization disappears once a new, lower balance is reported.
Sept. 24, 2018
Credit Score, Personal Finance
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Your credit utilization ratio — the amount of credit you use as compared to your credit card limits —  is a big factor that influences your credit score. So carrying a high balance on your credit cards monthly can hurt your score.

But once you’ve paid it off and your credit report updates, it won’t continue to affect your score.

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Although carrying a high balance on a credit card for a short period of time doesn’t do long-term damage, it’s still important to keep your credit utilization ratio low.

» MORETips for lowering your credit utilization

Experts advise keeping your usage below 30% — both on individual cards and across all your cards.

In the widely used FICO scoring model, your credit utilization accounts for about one-third of your overall score, while its competitor, VantageScore calls it “highly influential.”

How credit scores are calculated

Every month, the balance on your credit cards is reported to each of the three major credit bureaus — Experian, Equifax and TransUnion — by your issuers. This data then lands on your credit reports. When a new credit card balance report comes in, it replaces the information from the previous month.

When a new credit card balance report comes in, it replaces the information from the previous month.

This is how the changing information on your credit report can make your credit score fluctuate: Let’s say you have a credit card with a limit of $5,000. In one month you charge a new washer and dryer ($1,200) and have to pay for car repairs ($800). If you charged nothing else on that card, you’d have a balance of $2,000 on a limit of $5,000 — that’s a credit utilization of 40%, higher than experts recommend.

Now let’s say you have an emergency fund, and you pay that bill off at the end of the month and use your card normally the next month, charging about $500. Your credit utilization will drop to 10% ($500 against a $5,000 limit), well under the recommended maximum.

Scores are calculated only on an as-requested basis. Let’s say your card issuer reported data after you made the big charges but before you paid them off. You could see a big drop in your score. But if your score was calculated after the big bills were paid off, your score wouldn’t suffer.

So a high credit utilization ratio one month doesn’t necessarily spell disaster for your score in the long run.