How credit card use can effect your credit score

Minneapolis, MN: Why does how much credit you're using matter?  Simple, lenders look for signs of responsible credit usage, and the better you are at living within your means, the better it is for your credit score.

 

Many people think that simply never being late on your credit card is all you need to have a great credit score, but this is far from true. Everyone is viewed under what is know as the law of large numbers.  If most people in similar situations do similar things, you probably will too. If you constantly carry a balance, especially a high balance, you are considered high risk.  This because historically, those who carry high credit card balances tend to default at a higher rate. Therefore the assumption is you will too if you carry a high balances, so down goes your credit score.

 

If you are using most of your available credit, it may be difficult for you to get additional credit or other credit with a good interest rate.  Plan on getting a mortgage loan anytime soon? Mortgage interest rates on conventional loans can vary as much as 3/4 of a percent higher for someone with a 640 credit score versus someone with an 800 credit score.

 

Simply put, who tends to carry high credit card balances?  Those in good shape financially, of those maybe more living on the edge of their means?? Your credit score reflects the risk.  

 

On the other hand, if you carry low or no balance, this generally means you are in good shape financially, and either don't need to use the credit, or only a tiny bit of your available credit.