The Amount of Revolving Balances Too High?
Here's What It Means!

If you’ve applied for a credit card and been denied one because your revolving balance is too high, this article could help demystify things for you. Even applicants with perfect payment histories and long-term lines of credit may be confused when they are denied a new line of credit under this pretext. You may be questioning if you should keep your credit card accounts open or if there are other ways lower your revolving balance. This article will break down the basics of what a revolving balance is and ways you can potentially improve your credit score.

When you don’t fully pay off a credit card each month, the balance left unpaid carries on to the next month. A revolving balance refers to the amount of money that carries over on your credit card account. For example, if your credit card balance is $500 and you make a $100 payment, the unpaid $400 would roll over to your balance the next month and that is what would be called your revolving balance.

A revolving balance is important because it impacts your utilization rate. Your utilization rate is a number arrived at, after taking into consideration all your credit utilisation on revolving accounts, like credit cards. If you have a high revolving balance, your credit utilization will be high, which, in turn, can negatively impact your credit score. It is recommended that your credit utilization stay at or below 30% to help you maintain or increase your credit score.

Something else to keep in mind is if you open or close a credit card, your utilization rate may go up or down. Thus, keeping your credit utilization low will help your score.

If your revolving balance is high, the only solution is to pay them down. By paying your balances down, your credit utilization will decrease and help increase your credit score.

Entirely closing an account may not be the best idea because this will lower your available credit line that determines your credit utilization rate. In addition to this, your credit history is equally important. Having longer good credit history showcases that you are able to manage your debt well.

The best practice is to keep all of your credit cards open. Once they are paid off, using them for monthly expenses and paying them in full will help your credit score the most. Your score will reflect good credit management and a strong disciplined payment schedule. Using credit cards will also give you access to reward points that can prove to be beneficial in the future.

A good credit score is essential for many major life goals, for example, like buying a home. Your credit score determines whether you qualify for a home loan and if you do, your interest rate, term of credit and amount are decided based on this score. Lower rates on credit cards and better car insurance rates are also dependent on your credit score. Keeping up with your score can help your current financial situation and help you plan for the future.

Besides credit utilization, there are several other factors that impact your credit score that you need to be mindful of, in order to maintain or increase your credit score.

Keeping up with your score and checking it each month is a great place to start in order to fully understand where you can improve your score. Having an understanding of your starting point will help you make the best plan.

One thing you might easily overlook the importance of is making your payments on time. A clean payment schedule has a positive impact on your score since it makes up 30% of your overall credit score. Secondly, the length of your credit history can also play a significant role in your score.

If you have recently started building your credit score, the short credit history length could be keeping you from getting a higher score. If you’ve had your credit score for a longer time, if you close an account it can lower your average credit history length. While length is not something you can change as easily, just keeping your credit can help increase your score.

Other areas of your credit score include new accounts and applications, types of credit, and public records. These are more minor factors but are areas you should monitor if you are currently trying to improve your score.

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