A persistent myth about improving credit scores is the notion that maintaining a monthly credit card balance helps your score more than paying off your balance in full. Thats untrue. Whats more, carrying balances on your credit card accounts typically costs you money in the form of interest charges, and under certain circumstances it could even hurt your credit score. Read on to learn why.
It’s common to carry a balance on your credit cards. With everyday costs and emergencies, it can be hard to pay off your credit card in full every month. Let’s take a closer look at this question: Does keeping a balance hurt your credit?
What Does “Carrying a Balance” Mean?
If you have a balance on your credit card, you haven’t paid off the full amount you owe that month. For example, say your statement balance is $1,000. If you pay $500, you put another $500 toward the next month’s bill. Your credit card company will charge you interest on this balance that you still owe.
Carrying a balance doesn’t necessarily mean you’re irresponsible with credit Life happens, and sometimes expenses exceed your current cash flow. Carrying a balance can just mean you’ve used the credit card for its intended purpose – to finance purchases over time
How Credit Utilization Affects Your Credit Score
Your credit utilization ratio is one of the most important parts of your credit score. This shows how much of your available credit you’re actually using. For instance, if you have a $10,000 credit limit across all of your cards and a balance of $3,000, your utilization rate is 100%.
Experts recommend keeping your utilization below 30%. It’s better for your credit score if the ratio is low. If you have a high balance, it can hurt this ratio and your score.
However, even if you pay your cards off in full every month, your utilization could be high if the balances were reported right before your payment went through.
Do You Need to Carry a Balance to Build Credit?
A common myth is that you need to carry a balance to build your credit score. This is 100% false. Lenders do not care if you pay interest – they only care that make your minimum payments on time every month.
Paying interest does not help improve your credit whatsoever. The best strategy is to keep your utilization low by paying off balances when possible. But if you do carry a balance some months, just be sure to make those minimum payments on time.
How Payment History Is Calculated
Your payment history makes up a significant portion of your credit score. Lenders want to see that you can responsibly manage lines of credit.
When you carry a balance but make at least the minimum payment every month on time, it still counts positively towards your payment history. However, if you miss payments or pay late, that can quickly lower your scores.
Even if you pay off your cards in full, you should put some regular recurring charge on them and set up autopay. This will ensure you have an active account being paid on time every month.
Tips to Limit Damage to Your Credit Score
If an emergency expense comes up and you must carry a balance for a while, there are some steps you can take to minimize damage to your credit:
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Pay more than the minimum when possible. This helps reduce the balance faster and lower your utilization.
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Pay before the due date. Since balances are reported at statement close, paying early can reduce what gets reported.
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Request a credit line increase. A higher limit can counteract the impact of a balance on your utilization ratio.
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Use your lowest limit card. Try to carry the balance on the card with the lowest limit relative to balance. This contains the damage to one account.
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Use balance transfer offers strategically. Transferring the balance to a card with a 0% intro APR can buy you time to pay it off interest-free.
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Monitor your credit. Keep an eye on changes in your score and address any issues immediately.
The Bottom Line
Carrying a credit card balance can negatively impact your credit score, but that damage is minimized as long as you continue making on-time payments every month. Avoid carrying high balances when possible, but don’t stress if you have to carry a balance temporarily. Just take steps to pay it off quickly and limit its impact on your credit.
Pay Your Credit Card Balance in Full
Paying your credit card balance in its entirety each month is a great habit to adopt. Doing so has multiple benefits:
- Avoid interest charges. Before anything else, paying off your credit cards saves you money that you would have spent on interest. Credit card companies charge interest on the amount you still owe at the end of each billing period. This is the amount you “carry forward” to the next billing period. When you pay off your debt in full, the balance doesn’t carry over, and you don’t have to pay interest. As long as you use a credit card with an introductory 2% interest rate, you can carry a balance without paying interest. However, you will have to pay interest on any balance that is still outstanding after the introductory period ends. ).
- Reduce your credit utilization. Getting all of your credit card balances to zero every month can help you keep your credit utilization ratio (the amount of your total credit limit that you’re using) low and easy to handle. Both the FICO® Score and the VantageScore systems use utilization rate as a main part of the scoring system to decide credit score. If you regularly go over your credit limit, you might want to use a card with a higher limit (or get one if you don’t already have one) or ask your lender to increase the limit on your card.
- Prevent ballooning credit card debt. The best thing you can do to keep your credit card debt from getting out of hand is to pay all of your bills on time every month. If you don’t have a plan to pay it off, don’t use your credit card to buy something.
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How Carrying a Balance Affects Your Credit Score
Borrowers with relatively low levels of debt post less risk in the eyes of lenders, and credit scoring systems created by FICO® and VantageScore® reflect that: They dont treat all unpaid balances as negative, but they dont necessarily assign higher scores for maintaining balances. Using your credit cards regularly while maintaining low balances (or zero balances) tends to promote higher credit scores.
Credit card balances that are too high can even hurt your credit score. This effect is most noticeable when balances go over about 30% of a card’s borrowing limit. Those with the highest credit scores tend to keep credit utilization below 10%. Maintaining a zero balance by paying off all purchases in full each month is the best of all.
When it comes to the newest versions of the FICO® Score΢ and VantageScore credit scoring systems, this habit is especially helpful because they can use “trended data” gathered by the national credit bureaus. With trended data, scoring systems can look for patterns in individuals payment habits, and borrowers who routinely pay their card balances in full may tend to see higher scores than those who make only monthly minimum payments.
Does Carrying a Balance on a Credit Card Hurt Your Credit Score? (Q&A)
FAQ
Is it bad to carry a credit balance?
You may have heard that carrying a small balance will help your credit, but that’s a credit myth. According to the CFPB, it’s generally a good idea to pay off your credit card balance when you can, rather than carrying revolving debt. Jan 7, 2025.
Does having a credit balance affect your credit score?
The number of credit accounts you have with balances and an account’s balance relative to its credit limit or initial loan amount may affect your credit scores. Feb 29, 2024.
Is it better to carry a balance or pay it off?
Generally, it is better to pay off your credit card balance in full each month rather than carrying a balance.
Does carrying a balance on a 0 interest credit card affect credit?
A credit card with a 0% introductory APR can help you handle new or existing debt, but it can also make you spend more than you have and end up with a bigger balance. If you keep the balance after the introductory APR period ends, a 0% intro APR card can hurt your credit. Mar 12, 2025.