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Overview
Carry a Credit Card Balance vs. Pay in Full: What's Better For Your Credit
Carrying a balance doesn’t do your credit any favors: It just racks up interest charges. Here’s why carrying a card balance to build credit is a myth and what you can do to get a good credit score.
- Does Keeping a Balance Help Your Credit Score?
Carrying a balance does nothing to help your credit score. It works the other way around; it just racks up interest charges. Hopefully, your rate is low. Your balance relative to your credit limit on each card, or credit utilization ratio, can hurt your credit score if it is too high. Generally, maintaining a credit utilization ratio under 30%, and lower is better,
Keeping your credit cards active can also help your credit score. If you don’t use your card and the issuer closes it, your credit can take a hit because you lose payment history and available credit. In addition, credit scores require that you have the account and activity in the report to show you can manage it well. Still, actively using a credit card is not the same as carrying a balance. You can use your credit card, pay it off monthly and get credit-boosting benefits without interest charges. - Should You Pay Your Credit Card in Full or Carry a Small Balance?
Try to pay off your credit card monthly if possible. When you carry a balance, even a small one, you owe interest. From a credit-scoring perspective, there’s no reason to have a balance on a credit card. Don’t be surprised if your credit report still shows a balance even if you pay off your card each month. Typically, the statement balance on your monthly bill is reported to the credit bureaus. However, you could pay the balance before your statement date if you’re concerned about the balance’s effect on your credit. If you do roll over a small balance, as long as your credit limit is much higher than that balance, you’re in good shape. - How Can Carrying a Balance Hurt Your Credit?
Amounts owed are among the most critical factors that affect your credit score, second only to your payment history. The higher the balance, the greater the sign of risk. High balances are a strong indicator of risk that will drag down your credit scores. Making minimum payments could become tougher the higher your balances go. If you don’t pay the minimum on time, you could owe a late fee and hurt your credit score. - What Helps Your Credit Score The Most?
Here are some ways to rapidly improve your credit score:- Lower or eliminate credit card balances. Paying down balances on credit cards is one of the fastest ways to improve your credit score,
- Make all of your payments on time. Because payment history is the most critical factor in your FICO score, consistently making on-time payments will help it.
- Fix late payments ASAP. The credit bureaus don’t consider an amount late until you’ve missed an entire billing cycle, so you can make your payment a few days late before it lands on your credit report.
- Remove late payments. Ask your lender to remove a late charge from your credit report if you’ve caught up and your account is in good shape. You might get turned down, but it doesn’t hurt to ask.
- Monitor your credit history. Forgotten cards with unpaid balances may go to collections and accrue interest charges. Check your credit report frequently.
- Avoid closing accounts. The older your accounts, the better your credit score.
- Vary your credit products. Another factor, credit mix, looks for diversity of reports to see how well you manage different types of credit. For example, your credit might improve if you take out a loan and have never had one.
- Limit credit applications. Don’t go applying for five credit cards at once. Multiple hard inquiries on your credit report in a short window can ding your score. If you’re planning to apply for a mortgage or car loan, avoid other new inquiries if possible.
Are you currently carrying a credit card balance?
If you can’t pay it off right away, consider transferring your balance to a credit card with a lower interest rate. Our VISA Platinum Plus Credit Card offers a low fixed rate of 8.50% APR* and no balance transfer fee! - Does Keeping a Balance Help Your Credit Score?
