This means that your credit account limit or balance has fluctuated significantly over the last 12 months. This could be because your limit has either been increased or decreased. Alternatively, this could be because the varying balance on your credit accounts is indicating a high risk. Let’s dive a little deeper into these two instances which could affect your credit score.
If you request a credit limit increase, the credit provider may need to do some further investigating. This investigation is to see whether you can afford a credit increase. In this instance, there may be a hard enquiry that is done on your credit report. A hard enquiry will affect your credit score.
If you requested a limit decrease or your credit provider decreased your limit, this could influence your credit score. An important factor in determining your credit score is your credit utilization ratio. To work out your credit utilization ratio, you divide your overall balances by your total credit limit and multiply that by 100 to give you a percentage. Your credit utilization ratio should be less than 30%. If your credit limit decreases and your balance remains the same, this could push your credit utilization ratio to over 30%. For example, if you have a credit balance of R5000 and a total limit of R18 000 you have a credit utilization ratio of 27,78%. If your credit limit gets decreased to R14 000, your credit utilization ratio jumps up to 35,71%. Having a credit utilization ratio over 30% could affect your credit score.
Balance volatility could also be impacted by your credit utilization ratio. A credit score is influenced by the information that is displayed on a credit report at the time the score is requested. Different credit providers may report your balances to the credit bureaus at different times. Using more than 30% of your credit utilization then paying of the credit balance within a billing cycle can indicate balance volatility. You need to ensure that you are using less than 30% of your credit utilization going forward.
Also, try to make your credit repayments every 2 weeks, rather than just once a month. Your credit score will improve, as you are lowering your credit utilization.