Why You Should Keep Your Balances Low

Thirty percent of your credit score compares your total amount of credit to your level of debt. This is your credit utilization or credit-to-debt (CTD) ratio. Since lower ratios mean higher credit scores, a ratio of 30% or less is ideal. Why? Creditors view higher balances as a sign of financial overload.

Here’s how it works in practice. If you have 3 credit cards with each with a $1,000 limit and balances of $600, $800, and $900, your total CTD ratio will be about 77%. This is dangerously high. You should bring those balances down to $300 or less to increase your score.

Be careful. Closing your accounts doesn't hide the credit card balance from the ratio. Instead, it leaves the balance and "hides" the credit limit, making your ratio skyrocket while your credit score plummets.