[Visual of TITLE: Top 3 credit score questions]

In this video, we'll answer three of the most common questions about credit scores:

One: Does carrying a balance on my credit card hurt my credit score?

[Visual of man holding a giant circle in one hand reading “REVOLVING”, and giant box in other hand reefing “INSTALLMENT”]

It can. Your credit score is influenced by how much available credit you have and how much you owe on all of your accounts—this includes your revolving accounts—like credit cards and lines of credit, and your installment loans—like a mortgage or auto loan.

[Visual of a couple in a garden with “REVOLVING ACCOUNT” and “CREDIT” growing from rows in ground]

[Visual of man pushing wheelbarrow with “30%” filling up inside]

Credit cards are beneficial to have on credit reports because over time, they show a history of how well you manage credit. But if the amount you owe on your revolving debt is more than 30% of your available credit limit, it may have a negative impact on your score.

[Visual of woman writing a list, titled “TO DO”: 1) Keep revolving balances low 2) Pay bills on time 3) Pay more than minimum]

Since you don’t need to carry a balance on your cards month to month to show you’re using them, it’s usually beneficial to try and keep your revolving credit balance as low as possible. The best thing you can do for your credit score is to pay your bills on time and to pay more than the minimum monthly payment whenever you can.

Two: Does checking my own credit report affect my credit score?

[Visual of couple on steps outside apartment]

Checking your own credit report isn’t going to hurt you. And it’s really a good way to stay on top of things to avoid any unpleasant surprises down the road.

In industry lingo, it’s considered a soft inquiry.

[Visual of man sitting in between three pillows reading “EMPLOYMENT,” “PRE-APPROVED,” and “OFFERS”]

Examples of other soft inquiries are when companies check your credit for pre-approved offers, or when you apply for a job and your potential employer runs a credit check. Soft inquiries do not affect your credit score.

[Visual of woman sitting on a brick wall reading “HARD INQUIRY.” A thought bubble appears reading “THIS COULD LEAVE A MARK”]

[Visual of man under magnifying glass with “2 years” pointing to a sheet of paper reading “INQUIRY” 5 times]

[Visual of couple with standing next to shopping cart filled with “CREDIT” boxes. Caution tape is roped around the couple.]

A hard inquiry, however, might lower your credit score by a few points. This can occur when you apply for new credit and the lender requests a copy of your credit report to decide whether to approve you or not. These inquiries may stay on your credit report for about two years. Hard inquiries can suggest that you're actively seeking or have recently taken out more credit.

Three: Will cancelling a credit card hurt my credit score?

[Visual of man next to lockers with “CREDIT HISTORY” sign above. “AVAILABLE CREDIT” appears above lockers

It can. Your credit history is made up of a few different factors, one of which is how much of your available credit you’re using.


[Visual of 3 pipes: There’s a “CREDIT $1,000” sign above each of the three. The pipes lead down to a screen reading “$3,000”. In the middle, are screens reading”1,000” “$500” and “$0”. Another screen reads the total “$1,500” and “UTILIZATION RATIO 50%.”

Next, another visual of 3 pipes with “CREDIT $1,000” above. This visual shows a secondary screen reading “$750” and smiley face appearing on a new screen. The smiley face goes away, and a new “$750” appears above updated sign reading “UTILIZATION RATIO 75%.” A frown face appears where smiley face was previously]


Let’s imagine you have three different credit cards, each with a $1,000 credit limit, so your total available credit on these three cards is $3,000. You currently have one card maxed out. So you owe $1,000 on your first card, $500 on your second, and your third card has a zero balance. In this scenario, you’re using $1,500 of the $3,000 you have available for credit, about 50%.

Now, let’s say you picked up an extra shift at work and paid back $250 on your first card and the whole balance of $500 on the second. Nice work, by the way. Since two of your cards have no balance now, you close both of them. Your credit probably looks better to lenders now that you only owe $750 and you have less available credit, right? Not necessarily, because you now only have $1,000 in available credit. Remember, you closed two of your cards, which means the percent you’re actually using goes up, even though you owe less. On your credit report, it looks like this: you now are using $750 of the total $1,000 you have available. So now you’re using 75% of your credit. And that’s enough to have an impact on how lenders view you.

This isn't to say that you shouldn't close a credit card if you feel it's for the best, or replace a credit card with one with better terms. The main point is: you could have a better credit utilization ratio if you have some accounts open with no balance.

[Visual of couple in front of easel reading “TO DO: KEEP REVOLVING BALANCES LOW, PAY BILLS ON TIME, PAY MORE THAN MINIMUM AND USE ONLINE CREDIT SCORE SIMULATOR”]

Remember, the best thing you can do for your credit score is to make on-time payments and, when you can, pay more than the monthly minimum. There are online credit score simulators that can help you estimate how paying down balances, or closing a card can impact your credit score.


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