Credit scoring reports are determined based on several different factors and your credit card balance is one such factor. Factors such as late payments, too many credit inquiries, defaults on repayments, bankruptcy etc; all influence your credit score. To build good credit and a high credit score it is important to keep all these factors in check. While the balance of your credit card accounts do impact your credit rating, if all the other factors are fine, your credit scoring report will not be heavily impacted by your credit card balance.

Credit Card Accounts To Build Good Credit

Having credit card accounts is not necessarily a bad idea if you use them wisely. To build good credit, you must have a credit history and often applicants with no history on their credit scoring report find it hard to get new credit or loans. For this reason, credit card balance can be useful and help to build good credit. Even if you are in the low income bracket, you might be able to get a low credit limit credit card. However, only apply for a new credit card account if you can afford the repayments or it will just end up damaging your credit scoring report.

Close Credit Card Accounts For Credit Card Balance Transfer?

If you have a credit card balance with Bank A and Bank B comes along and offers you better interest rates, it seems the only logical thing to do would be to close your credit card account with Bank A and transfer your credit card balance to Bank B’s credit card immediately. But before you do that, consider what that means for your credit scoring report.

When moving from one credit card account to another, if the credit line on both accounts is the same, your “debt percentage” stays the same. Your debt percentage is the amount of money you owe in proportion with your credit line. So if you have a $5000 credit line on your credit card account and have used $2500 of it, your debt percentage is 50%. Credit card balance transfer from one account to another with the same credit line does not decrease your debt percentage at all. If your new account has a lower credit line, this increases your debt percentage.

Leave Credit Card Accounts Open For High Credit Score

Transferring your credit card balance to a new account makes sense when you can save money on interest but do it the smart way. If your credit card account with Bank A has been open for 5 years and you have only just opened a new credit card account with Bank B; Bank A is a valuable asset on your credit scoring report. Even if you do not use the account, leave it open. This gives you a larger credit line (Bank A + Bank B) but since the amount of money you owe remains the same, your debt percentage decreases and this is a good way of maintaining a high credit score. If you close your account with Bank A, your well-established credit scoring report history is deleted and you start afresh and this will affect your high credit score.

Build Your Credit With New Credit Card Accounts

Each time you apply for new credit, your credit scoring report rating falls slightly however if used wisely, new credit card accounts can help to build your credit. Here are some tips:

• To build your credit score, your new credit card balance should decrease your debt percentage so think hard before applying.
• Only apply for credit card accounts that you can afford to repay and really need.
• Applying for  too much new credit and too often will negatively impact your credit scoring report and you definitely do not want that.
• Credit card balance transfers to new credit card accounts with lower interest rates will save you money but consider the implications on your credit scoring report and act accordingly.
• If you transfer your credit card balance to a new account, leave the unused old account open for a few years to maintain a high credit score on your credit scoring report. This will help build your credit rating until you have established a repayment history on your new account.