The credit report terms “high balance” and “high credit” represent the highest balance or highest amount of credit ever used on your credit card. Let’s explore how lenders use this information and how it affects your credit.
We have talked extensively here at Keeping Score about the five basic elements that make up your credit score. These are payment history, amounts owed, credit age, credit mix and new credit.
But there are other lines on your credit report that you may – or may not – know about or what they mean. We are going to look at one of those this week: high balance.
What is a ‘high balance’ on your credit report?
When it comes to credit cards, the term “high balance” is found on Experian and TransUnion credit reports, while Equifax uses “high credit.” This represents the highest balance or highest amount of credit ever used on your credit card.
When it comes to your installment loans, “original amount” or “high credit” may be what you see on your report (as opposed to “high balance”) and refers to the total amount you borrowed when you first took out the loan. Since this is an installment loan, the amount will be reduced by each payment and is not replenished by payments. Because of this feature, installment loans are not included in your utilization calculation, which we will discuss next.
How does it affect credit utilization?
Credit utilization is the ratio of your credit card balance(s) compared to your credit limit(s). This factor accounts for approximately 30% of your total FICO score and is considered extremely influential (No. 1 factor) in your VantageScore.
Utilization is calculated for each credit card; it looks at how much of your credit you have used in relation to your credit limit. A card with a $5,000 limit and a $500 balance will show a 10% utilization rate. Each card will be calculated the same way, and then all of your cards’ balances and limits will be totaled to come up with your overall utilization rate.
I have recommended in my prior columns keeping this number below 25% across the board. So, the card I mentioned above is in great shape, but if you have another $5,000 card with a $2,500 balance, that card will show a 50% utilization rate. Taken together, your overall utilization rate on these two cards would be 30%, which is not terrible. But the 50% on the one card isn’t good. Depending on what else is in your file, this could result in a drop in your credit score.
High balance or high credit, however, is a different animal. This number is the highest amount of money you have ever charged on your card versus the highest balance you have carried after a statement closing date. It does not figure into your VantageScore or FICO score, but it has other uses.
For example, if you have a card with a $5,000 limit, charge $5,000, and then pay it down to $0 before your statement closes, your utilization will be 0%, but your high balance would show $5,000.
Who cares? Prospective lenders want to know if you are a person who pays their bills on time and if you use your cards and can make money for the issuer. So, if my high balance is $100, it shows I don’t use my card much. If it’s a big number, I may be a more valuable customer generating higher swipe fees.
High balance notations may also factor into what credit limit you get on your card out of the gate. If the most you’ve ever charged was $1,000, there is no benefit but only more risk for a lender to give you a large card limit of, say, $25,000.
See related: How to increase your credit limit
How does it affect your credit score?
In most cases, “high balance” notations will have no impact on your credit score. Simply having a high balance notation reported on a credit card will not affect your score unless your credit report uses your “high balance” as your credit limit.
This may happen if the creditor does not report a credit limit. Some charge cards, not credit cards, do this. I reached out to the two main scoring sources and asked how they handle a credit file that shows no credit limit but shows a high balance.
VantageScore told me they treat the high balance as the credit limit for these types of accounts. However, the VantageScore models will either not factor these accounts in the credit card utilization calculations or avoid showing the account as over-utilized when an account is in good standing. The same treatment is applied to the trended data utilization calculations in VantageScore 4.0. The elves at FICO do not use the high balance field in the FICO score calculation.
Do you need to know your highest balance?
I am a big believer in the adage, “Knowledge is power.” So yes, I believe you should know what your highest balances are on all of your cards at all times. From a practical standpoint, if you don’t use a particular card much at all and you see a suspiciously high balance, that may be an indication that someone else’s data is leaking over into your file, or worse, that someone else is hijacking your credit and may indicate identity theft.
As always, dispute anything on your credit reports that you don’t feel is accurate or timely. This is where I will remind you once again that AnnualCreditReport.com is offering free weekly credit reports through April of next year. I suggest you take advantage of this to be sure the information being reported is true and accurate.
And if you’ve never noticed a high balance, high credit or original amount notation when you’ve looked at your reports before, here’s your chance to check it out.
Remember to keep track of your score!