Credit Score Impacts

• There are five major factors that influence a credit score. These factors include: payment history, amounts owed, length of credit history, new credit and types of credit used. Payment history and the amount of debt you owe are two of the largest determinants of your credit score. The amount of debt you owe is measured against the total amount of credit available to you.
  
  

Responsible Borrowing

• Credit scores help lenders determine how high of a risk you are as a borrower. Typically, the lower your credit score, the more you pay in interest and fees to offset the creditor's risk in lending to you. One method of mitigating your risk as a borrower is to demonstrate a responsible use of credit. Credit cards are not loans. They are intended to cover expenses short term. If you show a history of carrying low balances and immediately paying off the debt, you will receive a positive credit rating each month. When you use your card as a loan and max it out to cover items you are not able to pay off, your credit score decreases.
  
  

How Much to Charge

• Typically, keeping your credit card balance below 30 percent of your limit helps your credit score increase each month. Consumers looking to pay down large balances should refrain from using the card until the credit balance is reduced below 30 percent. Continued use of the card as it reaches its limit puts you in danger of over-the-limit fees which are normally charged to the card. The fast accumulation of fees can make large balances difficult to repay.
  
  

Credit Utilization Ratio

• Your ability to maintain access to credit without maxing out each balance helps your credit score each month. A credit utilization ratio is the amount of credit you use versus the amount you have available to you. The more credit you have available that is responsibly managed, the better your chances of achieving a good score. Cancelling credit cards with no balance can lead to a lower credit utilization ratio and should be avoided when possible. "Each card is scored individually, and then all your cards are scored together. (If) you've just canceled the card with a zero balance, (you've) lost a great individual score," suggests Gregory Taggart of Bankrate.com.