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It can be scary to have a big balance on your credit card. You might be wondering what it means for your credit score or if it means you’re spending too much. What is a high balance? How does it affect your credit? This article will give you advice on how to handle a high balance.
What Does “High Balance” Mean?
If you carry a big amount over from one month to the next on your credit card, you have a high balance. In this case, it’s the biggest balance you’ve had on that card during a certain time frame.
Companies that lend you money keep track of your high balance for the past 12, 24, or 36 months. They report this number to the credit bureaus. So each of your credit cards may have a high balance on your credit report.
For example, if your credit limit is $5,000 and your highest balance over the past two years was $3,000, your high balance would be $3,000.
How Does High Balance Affect Your Credit Score?
Importantly, the high balance itself does not impact your credit score. The FICO and VantageScore formulas do not consider it.
What does affect your score is your credit utilization ratio. This measures how much of your total credit limit you’re using across all cards.
- For example, if you have three credit cards with a total limit of $20,000 and balances adding up to $5,000, your utilization is 25%.
Experts recommend keeping utilization below 30%. Above this threshold can start to negatively impact your credit.
So while high balance doesn’t directly hurt your score carrying high balances can increase utilization and lower your credit as a result.
What’s Considered a High Balance?
There’s no universal definition of a high balance. It depends on your individual credit limit and spending habits.
As a general guideline:
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Below 30% of your credit limit – This is considered a healthy balance. It shouldn’t negatively impact your credit score.
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30-50% of your limit – This is approaching high balance territory. Try to pay this down to avoid increased utilization.
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Over 50% of your limit – Carrying this much credit card debt month to month is generally considered a high balance. It may start to lower your credit through increased utilization.
Of course, everyone’s financial situation is different. Even if your balance creeps above 50%, focus on paying it down gradually and your credit will improve over time.
How to Manage a High Balance
If you find yourself carrying a high credit card balance, here are some tips to pay it down:
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Pay more than the minimum – This is crucial for high balances. Otherwise interest charges can keep your balance stagnant. Try to pay as much over the minimum as you can afford.
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Balance transfer card – Transferring your balance to a card with a 0% intro APR offer can provide temporary relief from interest charges as you pay down debt faster.
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Consolidation loan – Borrowing against home equity or taking a personal loan at a lower rate can help consolidate and pay off credit card balances.
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Debt management plan – Talk to a nonprofit credit counseling agency about setting up a structured DMP to pay off what you owe.
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Use cash – Stop using the credit card and switch to cash or debit until the balance is under control. This prevents it from increasing further.
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Boost income – Explore ways to earn more income that you can put toward debt repayment, whether through a side gig, promotion or new job.
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Cut expenses – Review non-essential spending you might trim to free up more money for debt payments.
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Negotiate lower APR – Ask your credit card company if they can reduce your interest rate. This makes paying off your balance more affordable.
Other Factors That Impact Your Credit
While high balances don’t directly lower your credit, some other credit card practices definitely can:
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Late payments – Nothing damages your credit faster than missing payments. Always pay at least the minimum by the due date.
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Credit inquiries – Each application for new credit results in a hard inquiry, which can lower your credit modestly. Limit applications to when you need new credit.
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Closing accounts – Canceling your oldest credit cards can decrease the average age of accounts on your credit reports, hurting your score.
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Credit mix – Lenders like to see you managing different types of credit, not just credit cards. Consider adding an installment loan like a car, student or personal loan.
The bottom line? Focus on keeping balances low, making on-time payments, and having a healthy mix of credit. This will keep your credit scores trending upward over time.
Frequently Asked Questions About High Credit Card Balances
How quickly does a high balance impact my credit?
Your credit score is updated whenever new information is reported to the credit bureaus. So if your balance spikes one month, it could negatively impact your credit as soon as the next reporting period.
What credit score is considered good if you have high balances?
You can still have a good credit score with a high balance. FICO considers scores of 670 or higher to be good. With strong payment history and other credit factors, you could have a score in this range even with high balances.
Should I close a card if I have a high balance?
It’s generally not recommended. Closing a credit card can actually worsen your credit utilization ratio and decrease your credit if you have an outstanding balance. It’s better to keep the account open and focus on paying down the card with the high balance.
How long does a high balance stay on your credit report?
A high balance remains on your credit report for the time period reported by your credit card issuer. This is often 24 months. As long as you lower the balance, it will eventually fall off your report and not factor into your utilization.
Can you negotiate a lower high balance with credit bureaus?
Unfortunately, you cannot negotiate your high balance directly with the credit bureaus. This information comes directly from your credit card company. If you want to adjust your high balance, you would need to work with the card issuer.
Key Takeaways on High Credit Card Balances
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Your high balance is the highest monthly balance on a credit card over 12 to 36 months, as reported to the credit bureaus.
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High balances only impact your credit indirectly through increased utilization if you carry debt month to month.
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Below 30% of your limit is generally considered a healthy balance. Above 50% is typically high.
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Paying down high balances, keeping utilization low, and making on-time payments will benefit your credit.
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Closing accounts, missing payments, and too many credit inquiries can also damage your credit with high balances.
Understanding what constitutes a high balance and how it affects your credit score puts you in a better position to monitor credit usage. With healthy credit card habits, you can keep high balances from dragging down your credit.
What is high credit on your credit report?
High credit on your credit report may also be called “high balance” or “original amount. ” This figure can be listed for each account on your credit report, and generally refers to the highest monthly balance or highest amount of credit you have owed on a specific credit card account or loan during a particular period of time, as determined by the bank.
Banks and credit card issuers often determine high credit using their own set of criteria. When it comes to credit cards, for instance, “high credit” could mean the biggest balance you’ve had on your card in the last 12, 24, or 36 months. The high credit amount on auto loans, personal loans, and other accounts that don’t let you borrow money again is usually the amount you borrowed in the first place.
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- Your credit score is based on how you use credit right now, including things like how well you pay your bills and how much credit you are using.
- Your credit report may also show something called “high credit,” which is based on how you’ve used credit in the past and can’t be changed.
- These high credit numbers shouldn’t affect your current credit score, and they shouldn’t stop you from improving your credit if you need to.
Your credit scores may seem like mysterious numbers plucked from thin air, but that’s only because such a wide range of factors come into play when determining them. FICO scores, for example, take five different categories into account, including payment history, new credit, credit mix, the age of your credit and the amount you owe in relation to your credit limits. When you consider all of these details and how they can change over time, it’s no wonder credit scores can feel confusing and unpredictable.
That said, there are also some data points that don’t directly impact your credit scores, but may still show up on your credit reports. “High credit” is one such detail that can fall into this category.