There are a variety of web sites that talk about how and what a credit score is, and a brief definition can be found here on Wikipedia. I found out one item that is rarely mentioned and has a great effect on the impact of this 3 digit number.
First, banks simply report two items to credit bureaus:
1) Your available credit limit
2) Your monthly balance
That is it, just those 2 items, not your interest rate or how much you pay each month.
The credit bureaus are of course interested in how much credit you have available but they are also interested in how fast you pay down your balance. So overpaying to get your account down faster is better for your overall credit score.
Not so fast though here is the second thing banks do.
They realize you over pay so they raise your interest rate.
This means that you are paying more in interest – to the bank – and less to your actual balance.
Your balance then goes down slower; the credit bureaus notice this and overtime this will affect your score. It may actually decrease your score if you are not careful.
Please watch your balance and your interest rates – the banks and credit bureaus do.