Every time that you get by a credit score you will usually be presented with a list of four to five risk factors that are affecting the credit score negatively. One of the commonest risk factors that may be presented in the case of a credit card account is “proportion of revolving balances to revolving credit limits too high”.
This simply means that the total balances on your credit card as compared from the total credit limit available to you collectively on those cards are high. Having a high debt utilisation ratio has a negative impact on your credit score. Proportion of revolving balances to revolving credit limit is considered to be one of the key factors that determine borrowers risk. By addressing the risk factors that are given to you along the credit score you can improve your credit scores.
It is by addressing the risk factors that you can improve your credit score. Hence the risk factors are important and provide you with a way to increase your credit score.
It is important to understand that the impact that the risk factors have on your credit score also depends on the rest of the information present on your credit report. If the rest of your credit report is healthy with lots of positive information and you already have a high credit score then addressing the risk factors may only have a minimal positive impact on your credit score. For example, if you already have a high credit score and one of your risk factors is the high balance on one of your credit card accounts than reducing the balance will only have a slight impact on your credit score, if at all.
Likewise, if you only have a few credit accounts on your credit report and the risk factor associated with them is the high balance then addressing this risk factor may have a great deal of effect on your credit score and may go a long way in improving it.
A simple way to think about it is that the closer you are to having the perfect credit score the harder you will find to improve further.
The recommended way of finding out whether there is a way to improve your credit score is to order your credit score at least once a year. The score comes with a report that explains what is impacting your credit score both positively and negatively.
It will also help you to understand where you stand in the lenders viewpoint as a lending risk. In case they plan to apply for a loan or credit in the future you can use this information to improve your credit worthiness if your credit rating has suffered in the past.