Balances carried is rated based on the balance to limit ratio.
Being that this component makes up 30% of the credit score , it is best to keep the balance to limit ratio low. In order to optimize your credit score it is best to keep your balance to limit ratio below 30%. To maintain your score where it is currently 50% is the maximum.
Let’s take a look at an example.
Let’s say a borrower has two credit card accounts, one Visa with Citibank and one Visa with Bank of America, and both accounts have credit limits of $10,000 but, one is maxed out and the other has a zero balance.
If the credit accounts are left as is, it will result in a lower credit score because balance to credit limit ratio is 100% on the maxed out card.
On the other hand, if the borrower spread the balance between the two accounts and owed $5,000 on each, the balance to credit limit ratio would only be 50% resulting in a positive affect to the credit and would create a higher credit score.
It is important to note, mortgage and / or installment loans do not require the same approach as they have less of an impact with the balances carried component.
Also important to note that being even $1 over the limit on a credit card can have an adverse impact on your score.