Amounts owed on accounts determines 30% of a FICO® Score
Owing money on credit accounts doesn't necessarily mean you're a high-risk borrower with a low credit Score. However, when a high percentage of a person's available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments.
Part of the science of scoring is determining how much is too much for a given credit profile. Your FICO Scores take into account several factors.
The amount owed on all accounts
Note that even if you pay off your credit cards in full each month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.
The amount owed on different types of accounts
In addition to the overall amount you owe, your FICO® Scores consider the amount you owe on specific types of accounts, such as credit cards and installment loans.
Credit utilization ratio on revolving accounts
Your credit utilization ratio on revolving accounts-the percentage of your available credit you're using-is an important factor in your FICO® Scores. Using a high percentage of your available credit means you're close to maxing out your credit cards, which can have a negative impact on your FICO Scores. On the other hand, using a low percentage of your available credit can have a positive impact. In some cases, a low credit utilization ratio will have a more positive impact on your FICO Scores than not using any of your available credit at all.
It's also important to note that your current account balance isn't necessarily the balance that shows up on your credit report and factors into your FICO Scores. Your account balance on your credit report will reflect the account balance your lender reported to the credit bureau (typically the balance from your latest monthly statement). So even if you pay your credit card balances in full each month, your account balance won?t necessarily show on your credit report as $0.
How many accounts have balances
A larger number of accounts with amounts owed can indicate higher risk of over-extension.
How much of the total credit line is being used and other "revolving" credit accounts
Someone who is close to "maxing out" several credit cards has a high credit utilization ratio and may have trouble making payments in the future.
How much of the installment loan amounts is still owed, compared with the original loan amount
For example, if you borrowed $10,000 to buy a car and you have paid back $2,000, you still owe (with interest) more than 80% of the original loan. Paying down installment loans is a good sign that you're able and willing to manage and repay debt