Especially when it comes to getting a mortgage, your credit score is one of the most important aspects of judging whether you have competency in money management matters, and whether you can get a low interest rate.
Revolving Debt and Credit Score
Revolving debt is one of the most important aspects of your credit score, and in order to consistently keep your credit rating as high as possible it is wise to fully understand this concept.
Credit agencies and banks have nearly full access to all of your credit history of borrowing money, since all major financial institutions will regularly report to the major credit agencies. To think that something will not show up on your credit report just because it is spread out over multiple credit cards is naive and it is not the way this industry works.
Revolving debt is the percentage of your total amount of credit across all credit cards and loans, relative to the amount of money that you still need to pay back currently.
For example, if you have five credit cards and a combined credit limit of $30,000, if you never used these credit cards or had them all completely paid off then your percentage of revolving debt would be 0%. This is seen as a good sign to banks and credit agencies, especially if you have been able to charge a lot of money and then pay it off fully and on time.
But if however you rack up $25,000 dollars worth of charges and make only the minimum payments for a year, your percentage of revolving debt would be close to 85%. For most banks and credit companies, any ratio of revolving debt that is above 30% is a signal that you may not be a trustworthy borrower, especially if this percentage has stayed high for a very long time.
The best way to keep your credit score high is to only make charges on your credit cards that you know you have the money to pay off right away. This way your percentage of revolving debt will stay as low as possible, and this combined with making your credit card payments on time will ensure that your score stays as high as possible.
