This column refers to the question asked by several people as to why their credit score is low in spite of the fact that all their payments have been on time. In many cases it has been observed that people who have been making their payments on time have also almost exhausted their entire credit limit. Late payments aren’t the only thing that is used to determine the credit rating of an individual. A credit score ways different factors in your credit report which includes details of what your credit and debt situation is like and how your credit behaviour represents you as a credit risk. Using up your entire credit limit even if it is on one single account is a strong indicator of high credit risk. Using up the entire credit on any account means that a single overcharge could put you over the limit whereas high credit utilisation on your entire available credit could mean that you are on the verge of a disaster.
While you may not have been late in the past any single event could put you in a situation where you are not able to pay the money that you owe to the lenders. And since you have used up the entire line of credit it means that you owe quite a lot. By using up all your available financial resources you have not left room for unexpected requirements that might crop up such as the air-conditioning in home breaking down, someone getting sick or other unforeseen expenses. If any of these things happen it will simply mean that you will get late and delinquent on your debt.
It is for this reason that using up all your available credit on any account which would include credit cards, home Equity line of credit etc will have a negative impact on your credit scores. If you try and stay below 30% of the total credit limit available to you individually as well collectively on all your credit accounts. Be specially careful so as to never have your credit cards be maxed out.