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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.
May 9, 2019
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 influencing your credit score.

Carrying a high balance on a credit card can hurt your score. But once you’ve paid it down and your credit reports update, it won’t continue to affect your score.

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

Experts advise keeping your usage below 30% of your limit — 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.”

» MORE: Tips for lowering your credit utilization

How a high balance affects your credit score

Every month, the balances on your credit cards are reported to each of the three major credit bureaus — Experian, Equifax and TransUnion — by your card 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%, which is 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.

Credit scores are calculated when requested. Let’s say your card issuer reported data before you paid off that $2,000 balance. If you or someone else check your score while that higher credit usage is on your credit reports, your score may be lower than you expect.

But if your score was calculated after your card issuer reports the next month’s lower balance, it would no longer show that drop.

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