It’s important to be cognizant of what does and does not impact your credit standing, and consumers who are contemplating big-ticket purchases are often curious about what effect making them will have.
This is an important question in people’s minds given the significance of credit utilization ratios to our overall credit standing. Credit utilization is the amount of your credit line that you’ve used and have yet to pay back. It is a key component of the "amounts owed" portion of your credit score, which accounts for roughly 30% of your overall rating.
The answer, of course, depends on how big of a purchase we’re talking about as well as how quickly you pay it off.
How Big the Purchase Is
Credit evaluators like to see credit utilization ratios of about 30-40%. Maxing out your credit cards (i.e. using 100% of your available credit) can indicate that you are relying on borrowed money to pay everyday bills and that you therefore susceptible to financial difficulties in the future if your income levels change or your debt becomes too expensive.
So, while making a large purchase that brings your credit utilization ratio above “acceptable” levels isn’t necessarily going to hurt your credit standing, especially if this is an infrequent occurrence or you have a low limit, it’s certainly not a point in your favor.
How Quickly You Pay it Off
If you make a big-ticket purchase and pay it off before the date that your monthly account statement gets printed, your credit standing won’t suffer a bit. Only balances remaining at that time get reported to the major credit bureaus.
Keep in mind, however, that we’re not saying you need to pay off a purchase by your due date, but rather that you need to pay for it by the date that the account statement it’s included on is made available. For example, if your new bill always becomes available on the 20th of the month, and you make a purchase on the 10th, you’ll need to pay it off within 10 days in order to keep it from impacting your utilization ratio.
It also goes without saying that a significant purchase you can’t afford will inevitably end up hurting your wallet in some way, shape, or form (well beyond simply increasing your credit utilization ratio). If you aren’t able to pay off what you owe before interest begins to accrue, the original ticket price will effectively rise over time. And if you miss a payment by more than 30 days, your credit report will reflect this delinquency, and that could cause a whole host of other issues. You can minimize the likelihood of such complications through budgeting or the combined use of a 0% credit card and a strategic debt payoff plan borne from a credit card calculator.