If you carry a credit card balance or balances, you could be hurting your credit score and your chances of getting a mortgage approval. Your credit card balances, how you pay your credit cards, and even the number of cards you carry can hurt your credit score.
But paying your credit card debt down can help and anyone can do it. Here’s what you must know.
How Does Credit Card Debt Affect your Credit Score?
Credit card debt is the second largest part of your credit score. The first is your payment history.
The credit bureaus calculate your credit utilization rate or the amount of credit card debt you have outstanding compared to your total credit lines. They look at credit card lines individually and as a whole.
Ideally, you shouldn’t have a utilization rate over 30% or it hurts your credit score. This means for every $1,000 credit line, you shouldn’t have more than $300 outstanding. Of course, it’s always best to pay your balance in full, but if you can’t, keep the 30% threshold in mind.
If your credit utilization rate is over 30%, it can hurt your credit score significantly. If you combine it with late payments (payments made more than 30 days late), you could damage your credit score quite a bit.
Does Carrying a Balance Hurt your Score?
Carrying a credit card balance doesn’t automatically hurt your credit score. It depends on the balance. Like we said above, if you carry a balance that’s over 30% of your total credit line, it can hurt your score. If it’s less, it may not hurt your score as long as you make your payments on time.
That doesn’t mean it’s a good idea to carry a balance, though. Every time you carry a balance, you pay interest on those charges. This increases the total cost of your purchase and makes it harder to pay the debt off in full.
How Fast Does Paying off Credit Card Debt Help your Credit Score?
Any changes you make to your credit takes time – your credit score won’t change overnight. But, paying off your credit card debt consistently will definitely help boost it. If you pay the balance off completely, your score might change in as little as 30 days.
If you take a more methodical approach, it may take more time, but every bit helps. Even if your credit score only improves a point or two at a time, over time it will accumulate to a much bigger and more effective change.