As inflation continues to rise, it can be difficult not to use your credit cards. After all, the goods and services you use every single day are presumably more expensive than ever. Still, if you cannot pay off your credit cards monthly, you may notice an immediate decline in your credit score.
Your credit score provides an instant snapshot of your creditworthiness to lenders, landlords and even some employers. While many numerical calculations go into determining your credit score, having high revolving balances on your credit card has an oversized effect on it.
What is a revolving balance?
According to Experian, one of the three major credit bureaus, a revolving balance is any amount you still owe after making a payment. Depending on the terms of your credit card, you may have to pay interest on your revolving balances. If your card has a lofty interest rate, the interest you pay may be significant.
How do revolving balances affect credit scores?
Your credit utilization ratio, which is the amount of credit you are using compared to the amount you have available for use, probably accounts for roughly 30% of your credit score. Therefore, if you have used more of your credit than you have available, your credit score is likely to drop. On the other hand, regularly paying off your revolving balances may cause your personal credit rating to increase.
Finding the money to pay off high credit card balances may be far from realistic for you. Ultimately, if you simply cannot afford to make more than minimum payments, you may want to take a hard look a bankruptcy and other debt-relief solutions.