Credit Card Balances

I allowed my Mastercard to go over the 30% balance ratio just to see what happened to my score!

First of all, I do not recommend you try this at home. Disclaimer in place- let's review the outcomes to my score.

The background: I pay off my MasterCard account each month so that I don't have to pay interest. I will occasionally use the card during a month, although almost always pay cash or use a debit card for purchases. I have 2 mortgages(rentals), 1 personal loan(parent student loan) and 3 credit cards(MasterCard, Visa, Sears).

Last month I had a large purchase to make and my curious nature had the bright idea to measure exactly what would happen to my credit score if I allowed my balance on one account to exceed the 30% balance ratio point for a month. The balance ratio accounts for 0-255 points of a credit score, which is the second largest allowance in the credit scoring formula.

The balance a person owes on a revolving account is divided into the available credit to come up with a percentage. The lower the percentage the more credit scoring points a person earns. The magic ratios are: under 30%= excellent. 31%-50% = good. 51%-80% = average. Over 80% = very bad.

My balance ratio went from less than 3% the month before to 31% this month. The IMPACT TO MY SCORE WAS A DROP OF 12 POINTS. Obviously if I had allowed the balance to increase by more than 31% or allowed more than one credit card to increase over 30%, my score would have experienced an even larger decline.

The bottom line is: If you are planning on borrowing or applying for insurance or applying for a new job (all three of these items are credit score dependent).....then do not allow your balances on credit cards to exceed 30% of the available credit.


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