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The amount of money you owe and the number of accounts with balances affect your score

A)True
B)False

User Swbandit
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1 Answer

6 votes

Final answer:

The statement is true; both the amount of money owed and the number of accounts with balances can negatively affect a credit score. Higher debt and multiple accounts with balances can increase risk perception and lead to higher interest payments, which feed into a lower credit score.

Step-by-step explanation:

The statement that the amount of money you owe and the number of accounts with balances affect your score is true. The credit score is a reflection of your financial behavior, including debt and the management of multiple credit accounts. When you owe money, especially when it spans across several accounts, it generally indicates a higher level of risk to potential lenders. As such, it can negatively impact your credit score.

Having multiple accounts with balances might suggest that you are overextended, while a higher overall debt can lead to increased interest payments. Paying off credit balances quickly is vital as interest charges accumulate, adding to the total amount owed. It's also important to maintain a healthy debt-to-income ratio and to utilize a reasonable portion of available credit to show responsible financial behavior.

Lenders utilize credit scores as a fair way to make credit decisions, focusing on past and present financial actions rather than personal characteristics. Therefore, maintaining a positive credit score involves timely bill payments and the judicious use of credit.

User Zorgatone
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