How Long Will It Take For A High Balance Not To Hurt My Credit Score? When A New, Lower Balance Is Reported, Your Credit Score Penalty For High Credit Utilization Disappears
Our reviews are unbiased, objective, and non-sponsored. When you buy via links on our site, we may earn a small commission at no cost to you. As an Amazon Associate, we earn from qualifying purchases.
Your credit utilization score plays a huge part in influencing your credit score. The ratio of how much of your available credit you are using to the total available credit on all of your credit cards impacts significantly. Having a large credit card bill might really hurt your credit score.
The thing is with credit ratings, they are moving beasts, so, once you’ve paid it off and updated your credit reports, the negative effects will cease.
While a short period of high credit won’t hurt your score, it’s still a good idea to keep your utilization ratio low. Both on an individual basis and as a whole, experts recommend maintaining your balances below 30% of your available limit. Credit utilization makes up nearly a third of your total score in the commonly used FICO scoring model.
What is a “high balance” on your credit report?
Experian and TransUnion credit reports use the term “high balance,” while Equifax uses the term “high credit” when referring to credit cards. This is the maximum amount that you have charged to your credit card.
Related: How To Lower Your Credit Utilization
The effects of a big balance on your credit rating
Issuers submit your credit card balances to Experian, Equifax, and TransUnion every month where they add this information to your credit file. When a credit card company reports a new balance, the percentage of available credit is the relevant factor.
An example of how your credit score can change due to new or updated information on your credit report is as follows:
Say your credit card has a $5,000 limit. You buy a new laptop costing $1,000 and have to get your car four new tyres costing another $1,000, all in one month.
With a $5,000 credit limit and a $2,000 load, your credit usage ratio is 40%, which is far higher than what is recommended by financial experts.
Let’s imagine you settle that debt at the end of the month and continue using your card normally, racking up another $500 in charges the following month.
If you have a $5,000 credit limit, you’ll only be using $500 of it, bringing your utilization rate down to 10%.
So as you can see a high credit utilization will not damage your credit score forever.