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How leftover holiday credit card debt impacts your credit score

By Lucy Lazarony · Bankrate.com
Monday, December 27, 2010
Posted: 2 pm ET

The Christmas holidays may be over, but all those 'tis the season credit card charges have a way of dragging on ... and on and on.

According to a poll by Consumer Reports, as of October, 13.6 million Americans were still paying off credit card charges from the 2009 holiday season. That's some holiday hangover. Lingering holiday credit card debt that drains your wallet could also put a damper on your credit score.

Here's how:

Your credit score considers how much of your available credit lines that you use every month. This is called a credit utilization ratio, and as your credit utilization ratio climbs, your credit score dips.

Heavy credit card balances will nudge your credit utilization higher causing your credit score to drop.

Wondering just how good or how dire your credit utilization ratio may be after all your holiday shopping? It's easy to find out.

Simply add together all your credit card balances. Next, add together all the credit lines on your open credit card accounts. And now divide the sum of your credit card balances by the sum of your credit lines.

The two-digit number that you see after the decimal point is your overall utilization rate. To calculate the utilization rate on an individual credit card, simply divide your monthly account balance with your credit line.

How important is your credit utilization ratio to your credit score? Utilization counts for a good portion of a factor worth 30 percent of a consumer's FICO score, the most widely used credit scoring model. A FICO score considers your overall credit utilization ratio as well as the highest utilization on any credit card.

To bolster your credit score, it's a good idea to keep those credit card balances as low as you can manage. Using less than 10 percent of a card's credit line will provide the maximum score benefits.

Curious about the impact your credit card debt may be having on your credit score? You can estimate your credit score using Bankrate's FICO score estimator.

Feeling even more glum about the prospect of lingering holiday credit card debt now that you know the drain it could be having on your credit score?

Don't be too hard on yourself, especially if you've been diligent with your credit card payments. Your payment history accounts for 35 percent of your FICO score.

Having squeaky-clean payment records on your credit card accounts will help to lift your credit score. So pay those credit card bills on time each and every month.

You can lift your credit score even higher by paying down credit card debt. These payment strategies will help you get started.

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