Is It Possible To Have A High Credit Score Despite A Rising Credit Balance?

As you probably know, having a good credit score can work to your advantage in many ways. For instance, the interest rates you are charged on credit cards and loans is mainly based on your score. 

We have started to become a cashless society. With today’s technology, it is so much easier to tap and pay or shop online with a credit card number. You could say that it is hard not to use credit these days. It provides a convenient way of paying for products and services that we regularly need like groceries and food. It also enables us to make large purchases without the need to first save up for it. Most people who purchase a home take out a mortgage. Auto loans are commonly used when buying a car. Credit has become a gateway to attaining what we need in the now.  

Who uses credit cards? 

According to data provided by the Federal Reserve, 83% of adults had at least one credit card in 2022. Experian broke it down even further and averaged 3.84 credit cards for each American adult. The site Zippia noted that there are 1.1 billion credit cards in the U.S. and 41% of consumers prefer to pay with a credit card. 

As we depend more and more on technology, credit card usage is expected to increase. That means keeping a healthy credit score has never been more important. Knowing all you can about your credit, including how the balance you carry could affect it, could have far-reaching consequences. For starters, is it possible to have a good credit score despite a rising credit balance? 

What is the average credit score? 

According to FICO, the average credit score was 716 as of April 2021. That is an increase from 695 in 2015. In 2022, credit card debt increased 3% for an average of $6,270. 

This tells us that despite increasing credit balances, credit scores are also increasing. Even though many people associate a higher credit balance with a lower credit score, the facts say otherwise. In the past, people’s on-time payments kept their good credit score in good standing. Today, your credit score takes a lot more information into account before settling on a number. 

What is a FICO credit score? 

According to myFICO, the total amount owed on accounts determines 30% of a FICO score. So how much debt you carry overall is a huge consideration. However, myFICO does mention that the amount of debt you carry is not as important as credit utilization. 

The amounts owed category looks into 5 factors to make up the 30%: 

1. The amount owed on all accounts 

2. The amount owed on different types of accounts 

3. How many accounts have balances 

4. Credit utilization rates on revolving accounts 

5. How much of installment loan is still owed 

Don’t take on additional debt until you have lowered your credit utilization to 30%. For instance, let’s say you have a $10,000 credit limit. In that case, your debt should never rise above $3,000. If you do find your percentage creeping up, you should stop accumulating debt until you move back within range.  

Head over to myFICO for a more in-depth explanation of what factors go into your credit score and specifically the amounts owed category.  

On-time payments can boost your credit score 

While it is okay to borrow money, paying it off on time can boost your credit score. You should align your payment and budget plan so that you can set aside the money you need to pay back your debts. Please note that a high debt balance can be used to help build your credit score. But if you don’t pay it back in a timely manner, it could lower your credit rating and work against you. 

If you have a credit card that isn’t doing much more than taking up space, you might be tempted to close it. Before you do, consider if you are going to need more credit in the near future. Perhaps you are in the market for a car, or you can’t wait much longer to repair your leaky roof. Closing your credit card account could backfire since it will lower your credit score in the short term. Which means you could end up paying more interest on your new debt. 

It’s smart to be more conscious of your credit rating. The Federal Reserve increased the interest rate in 2022 and everyone else in the financial industry has followed closely behind. This means your credit card rate can go up, if it hasn’t already. A high credit score can keep your interest rates in check. 

A good credit score signifies a few things about you as a borrower: 

• You pay your bills on time. Your payment history influences 35% of your credit score. You can be trusted to pay back your loan if you show lenders that you have a good payment history. 
• You have paid off different types of debt. The type of credit you have used in the past is another consideration that will speak volumes about your credit management abilities. If you have borrowed student loans or a mortgage and you use credit cards, this will signify that you were qualified to open these credit accounts. It also serves as proof that you know how to handle different types of debt responsibly. 
• You can manage your finances well. Finally, a high credit score shows that you know how to manage your finances well enough to avoid going into the red. A lack of debt does not necessarily indicate that you are great with your finances. It could mean the opposite – you do not qualify for loans because you lack the discipline to manage your finances. When you have a high credit rating, that means you are unafraid to use credit because you don’t give in to temptation. 

Common questions about credit 

What factors into a high credit score? 

• 35% Payment history 
• 30% amount you owe 
• 15% length of your credit history 
• 10% new credit you apply for 
• 10% types of credit you use

What is a good credit score range? 

A high credit score range will depend on the formula that you use. In a FICO model: 

•  A good credit score is 670 to 739. 
• A very good credit score is 740-799 
• An excellent credit score is anything above 800

What does a high credit score mean? 

The more you pay your bills on time, the higher the score. It also means you have used different types of credits without compromising your finances. When you have a high score, the lender or creditor will offer you a favorable interest rate as a low-risk borrower. They also don’t need to take extra precautions against the possibility that you will not pay them back.

Why is a good credit score advantageous? 

A good credit score indicates that you are a good candidate to borrow money and pay it back. It may give you important financial advantages, including access to more options, lower interest rates, and more lender choices. Credit risks might only qualify for secured loans, which requires collateral to back it up in the case of default.

Is it possible to achieve a perfect 850 credit score?

While credit agencies calculate their scores differently, the main credit bureaus including Fico have a maximum score of 850. 

Achieving a perfect score of 850 is possible but unlikely. Currently, only 1.31% of the American population can boast of an 850 Fico score.