Is It Good to Have a 0 Balance on Credit Cards?

Having a 0 balance on your credit cards can be a good thing but there are also some potential downsides to consider. In this article we’ll take an in-depth look at the pros and cons of having credit cards with 0 balances.

The Pros of a 0 Credit Card Balance

Here are some of the benefits of keeping your credit cards at a 0 balance

1. You Avoid Interest Charges

If you keep a balance on your credit cards, you’ll have to pay interest every month. In general, credit card interest rates range from about 6% to 12% APR, depending on your credit score. If you keep your balance at zero, you won’t have to pay any interest. This can save you a lot of money over time.

2. It Helps Your Credit Utilization Ratio

Your credit utilization ratio tells you how much of your available credit you’re actually using. Experts recommend keeping this below 30%. If you don’t owe anything on your cards, your utilization will stay very low, which can help your credit score.

3. You Have More Available Credit

When you have more credit available across all of your cards, your utilization ratio will go down if you do have a balance. When you have 0 balance cards with credit that you haven’t used, you have more room to move before your utilization goes too high.

4. It Encourages Responsible Credit Habits

If you want to keep your credit score high, you have to do good things like pay your bills on time and in full every month. This kind of careful use helps your credit score over time.

5. Peace of Mind

Finally, having a 0 balance gives you peace of mind that you don’t owe anyone money. You can use your cards freely without worrying about interest fees piling up.

The Cons of a 0 Credit Card Balance

However, there are also some potential disadvantages to having 0 balance cards:

1. Credit Card Closures

If you never use certain credit cards, the issuer may close the account due to inactivity. This lowers your total available credit and hurts your credit score.

2. Missed Rewards

If you don’t put any spending on cards with good rewards programs, you’ll miss out on earning points, miles, cash back, etc. Having 0 balance cards reduces the rewards you can earn.

3. No Credit Score Improvement

While a 0 balance helps your utilization, it doesn’t demonstrate that you can responsibly manage credit. Moderate, paid-off use each month shows lenders you’re creditworthy.

4. Lower Account History

Closing old accounts or not using cards can lower your average account age, also damaging your score. Keeping cards open longer improves this factor.

5. Higher Chance of Fraud

Inactive cards are more likely to be shut down due to suspected fraud. Putting a little spend on 0 balance cards keeps them active and reduces fraud alerts.

Tips for Managing 0 Balance Credit Cards

Here are some tips on how to enjoy the pros of 0 balance cards while avoiding the potential cons:

• Make small purchases every 6-12 months on unused cards to keep them active. Pay it off to retain the 0 balance.

• Set up automatic $5 monthly subscriptions on inactive cards to maintain activity.

• Avoid closing old accounts if possible – ask the issuer to downgrade to a no annual fee card instead.

• Track all your 0 balance cards in a spreadsheet or budget app to avoid inactivity closures.

• Put regular spending on rewards cards to earn points, but pay in full each month.

• Every so often, use 0 balance cards for purchases and pay them off to show activity.

• If you do close a card, apply for a new one so your available credit stays stable.

The Verdict: 0 Balance Cards Are Largely Positive

Overall, having credit cards with 0 balances is recommended as long as you take some steps to avoid potential downsides. The benefits of no interest, low utilization, higher credit, and responsible habits outweigh the risks in most cases. Use the tips above to maximize the pros while minimizing the cons of keeping your credit card balances at 0.