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The proportion of balance to limits on revolving charges
While your payment history is the most heavily weighted element in credit scoring models, how you use and pay your credit cards accounts comes in a close second. The proportion of your credit limit you have already accessed-regardless of payment history-affects your score in most scoring models. Here are some key takeaways:
30% of your credit score is determined by “Proportion of Balance to Limits on Revolving Accounts.” It shows how you use and pay credit cards and other types of revolving debts.
Below is a formal definition. For me, a revolving account is one where you can access credit to the pre-established limit without further approvals from the creditor. Your monthly payment can be as low as an agreed-upon minimum to the full amount owed. Credit cards, home equity lines of credit (HELOC) and personal lines of credit are all examples of revolving debt.
Fact: The less of your available credit you use, the better it is for your credit score.
The proportion of balance to limit is called your Credit Utilization Ratio (CUR). Your credit utilization ratio is calculated by BOTH individual tradelines and in the aggregate. Here are some CUR considerations:
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There are 3 ways to improve your CUR:
CUR Best Practices: Be proactive
A great credit score is 750++ on all credit scoring models. Having such scores is an important part of living a MoneySmartLife.
Here are 11 benefits of having and maintaining great credit scores.