Impact Of Credit Card Balance On Credit Scores For Mortgage

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Impact Of Credit Card Balance On Credit Scores For Mortgage

This BLOG On Impact Of Credit Card Balance On Credit Scores For Mortgage Was UPDATED On August 9th, 2018

There is a great impact of credit card balance on credit scores.

  • Credit cards are extremely powerful tools in establishing credit
  • The higher the credit card limit is, the better it is and the higher impact it has on consumer credit profile
  • However, there is a great impact of credit card balance on credit scores
  • The higher credit card balance consumers have on credit card, the lower their credit scores will be
  • One thing about credit card balances is that even though the credit card balance will fluctuate scores month to month, it is not a permanent effect that it has on credit scores
  • A consumer’s credit scores can easily drop by more than 100 points if they max out all of their credit cards to their credit limit
  • However, paying the credit card balances down one month will instantly boost the consumer’s credit scores back up by the following credit reporting period by the credit bureaus

Importance Of Credit Cards

Credit cards are one of the most powerful tools in establishing and/or re-establishing your credit.

  • Consumers who had periods of bad credit or those who just had to go through a bankruptcy and/or foreclosure can start re-establishing their credit by getting a few secured credit cards
  • It will be extremely difficult for a consumer who just went through periods of bad credit or bankruptcy and/or foreclosure to get unsecured credit
  • Chances are that they have low credit scores and many derogatory credit items on their credit report. However, thank God for secured credit cards
  • Secured credit cards are the fastest and easiest way of re-establishing your credit after bankruptcy, foreclosure, or periods of bad credit

How Do Secured Credit Cards Work?

Secured credit cards are just like regular credit cards:

  • However, the consumer needs to put a deposit down and the secured credit card company will issue a credit limit equivalent to the amount of deposit the secured credit card customer has put down
  • For example, Capital One is one of the nation’s largest secured credit card companies
  • If a consumer puts down a $500 deposit, the secured credit card company will grant credit equivalent to the $500 deposit the consumer has put down
  • The secured credit card company will charge interest just like regular unsecured credit card company on the balance
  • A monthly minimum payment will be due
  • The secured credit card company will report the consumer’s payment history on all three credit bureaus
  • If the consumer is 30 days late on their monthly minimum payment due, then the secured credit card company will report them late on the credit reporting agencies
  • This is done just like unsecured credit card companies

Credit Card Limit Increases On Secured Credit Cards

The higher the credit card limit, the better it is for consumer credit scores:

  • Secured credit card companies will charge an annual membership fee
  • If the consumer has a good payment history for at least 12 months, most secured credit card companies will increase the consumer’s credit limit
  • Credit limit increase is done without asking the consumer for additional deposit
  • Secured credit cards are the easiest and fastest way in establishing and re-establishing credit
  • For consumers with no credit scores or no credit, getting secured credit cards will instantly give them a credit score
  • Consumers with low credit scores due to no active credit trade lines can expect a 10 to 20 point jump on their credit scores for every secured credit card they get
  • Three secured credit cards is highly recommended for maximum credit score optimization

Negative Impact Of Credit Card Balance On Credit Scores

Consumers high credit card balance will have negative impact on their credit scores. If consumer has credit card balances maxed out, it will plummet their credit scores. Consumers who want to maximize their credit scores, they need to keep their credit card balance under 10% of the available credit card limit. On the flip side, having a zero credit card balance will also have a negative impact on credit scores. To optimize credit scores, consumers need to have at least a $10 dollar credit card balance and not a zero credit card balance.

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