Are you looking to apply for credit? Whether it’s a mortgage auto loan or credit card you might be asking yourself are high credit card balances going to affect my chances of qualifying for this new loan? Are those high credit card balances going to bring down my credit score?
That’s why I wanted to put together this video today to talk a little bit about this situation and how it’s looked at by the credit bureaus. I look at literally dozens of credit reports every month and high credit card balances are one of the main things that I see that cause credit scores to come down. They’re one of the main things that also we can help people to properly allocate their money, to pay down those balances in the right places to bring their credit score up. So if I can help you out with that, give me a call. I’d be happy to analyze your credit report.
But let’s talk a little bit about what the credit bureaus are looking at in regards to high credit card balances. Now, when we’re talking about high credit card balances, we’re talking about the percentage of the max. A high balance compared to the max that’s allowed on that credit card, because the dollar amount of the credit card balance doesn’t necessarily affect things. Because that’s subjective. A high credit card balance for one person may not be for another person. What the credit bureau’s looking at is the percentage of the max. Let’s take a $100 max credit card, or let’s… Better example, a thousand dollars max credit card compared to a $10,000 max credit card. And let’s say we have a hundred dollars balance on each. So on the $1,000 credit card, that’s 10% of the max and on a $10,000 max credit card, that’s only 1% of the max.
In the credit bureau’s eyes, that a hundred dollars balance on the $10,000 max credit card has less of an effect on the credit score than on the thousand dollars max credit card. So the credit bureaus, they’re going to be looking at thresholds as a percentage of the max with how much it affects your credit score. The first threshold is 10% of the max. Above 10% of the max, it may bring down your credit score a little bit, not too much. And if your credit score is already lower, it’s going to probably affect you more than someone with an already high credit score. The next threshold is 30% of the max, after that is 50% of the max. And then the next threshold is that the credit card is maxed out. Then the worst possible situation is if, when we pull your credit, you actually show a balance that’s over the max that shows to the credit bureaus that account might be imminent for going to collections.
These are thresholds. And that being said, if you have multiple credit cards and you only have a certain amount of funds to allocate to those balances, that’s where the advice of someone like me comes in, where we can help to analyze where to most effectively apply those funds, to have the maximum effect on your credit score to bring that credit score up. Call me if I can help you out with that. If you have any questions or anything, always happy to talk to you about it and have a great rest of your day!