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Although credit cards can greatly simplify bill payment and daily expenses, they can also cause issues if not fully paid off. There’s generally no benefit to carrying a balance when it comes to your credit score. If you need more time to pay off a large purchase, that is the only reason we would charge you more than you can afford at the end of the billing cycle.
Your credit score may be impacted by having a balance on your card, though this effect is not always negative. There is no universally applicable “right” or “wrong” response, and there are many circumstances in which maintaining equilibrium isn’t catastrophic.
The short answer is no. Carrying a balance on your credit card is generally not recommended. It can lower your credit score, increase the amount of interest you pay, and make it harder for you to pay off debt.
However, there are some situations where carrying a balance might make sense For example, if you’re using a 0% APR credit card to finance a large purchase, or if you’re trying to improve your credit score by showing that you can manage credit responsibly.
The benefits and drawbacks of having a balance on your credit card are examined in more detail below:
Pros:
- Can help you build credit: If you use your credit card responsibly and pay your bills on time, carrying a balance can help you build a good credit history. This can be helpful if you’re looking to apply for a loan or mortgage in the future.
- Can help you finance large purchases: If you can’t afford to pay for a large purchase outright, carrying a balance on a 0% APR credit card can help you finance it over time without paying interest.
- Can help you earn rewards: Some credit cards offer rewards points or miles for every dollar you spend. If you carry a balance, you’ll earn more rewards points, which can be redeemed for travel, merchandise, or cash back.
Cons:
- Can hurt your credit score: Carrying a balance on your credit card can hurt your credit score, especially if you’re carrying a high balance or if you’re close to your credit limit. This is because credit utilization, which is the amount of credit you’re using compared to your available credit, is a major factor in your credit score.
- Can cost you money in interest charges: Credit cards typically have high interest rates, so if you carry a balance, you’ll be charged interest on the outstanding balance. This can add up quickly, especially if you’re carrying a large balance or if you’re only making minimum payments.
- Can make it more difficult to pay off your debt: The longer you carry a balance, the more interest you’ll accrue, making it more difficult to pay off your debt. This can lead to a cycle of debt, where you’re constantly paying interest on your balance and never making any progress on paying it down.
If you’re considering carrying a balance on your credit card, it’s important to weigh the pros and cons carefully. If you decide to carry a balance, make sure you’re doing it for a good reason, such as financing a large purchase or building credit. And be sure to keep your balance low and pay it off as quickly as possible to avoid paying high interest charges.
Here are some tips for managing your credit card balance:
- Pay your bills on time: This is the most important thing you can do to improve your credit score and avoid late fees.
- Keep your credit utilization low: Aim to keep your credit utilization below 30%. This means that you should only use about 30% of your available credit.
- Pay more than the minimum payment: If you can, pay more than the minimum payment each month. This will help you pay off your debt faster and save money on interest charges.
- Consider a balance transfer: If you have a high-interest credit card, you may be able to save money by transferring your balance to a 0% APR credit card.
- Seek help if you’re struggling to manage your debt: There are many resources available to help you manage your debt, such as credit counseling and debt management plans.
Carrying a balance on your credit card can be a risky proposition. If you’re not careful, it can hurt your credit score, cost you money in interest charges, and make it more difficult to pay off your debt. However, if you use your credit card responsibly and manage your balance carefully, it can be a useful tool for building credit, financing large purchases, and earning rewards.
Using Up Too Much Available Credit
The balance you owe in comparison to your total credit limits is a significant component that contributes to your FICO Score. This is also known as credit utilization, and it makes up 30% of your score.
The algorithms that determine credit scores label borrowers who consistently reach or surpass their credit limits as “risky.” The majority of experts, including those at the Consumer Financial Protection Bureau (CFPB), advise maintaining your total utilization below 3% of your credit score in order to prevent a negative impact. Therefore, a person with a $10,000 credit limit would try to limit the total amount they charge on all of their credit cards to no more than $3,000.
Other Situations Where Carrying a Balance Doesn’t Make Sense
There are many more reasons not to carry a balance on your credit card, in addition to the ones we’ve already discussed, which include the short- and long-term harm that carrying a balance can do to your credit score.
Should You Carry a Small Balance on Your Credit Cards | Limitless Kredit Podcast
FAQ
Is it better to pay off your credit card or keep a balance?
How much balance should I leave on my credit card?
Is it good to keep a zero balance on credit card?
Do credit card companies like when you carry a balance?
What happens if you carry a balance on a credit card?
Carrying a balance on a credit card means not paying off the credit card bill in full before the due date. If you carry a balance, the credit card issuer may charge interest on what’s left over as well as any new purchases. Not keeping up with minimum payments could impact your credit scores if the lender reports it to the credit bureaus.
Should you carry a credit card balance?
In general, it’s probably best not to carry a credit card balance. But sometimes you might find it impossible to pay your entire balance on time. In that situation, you’ll want to pay attention to how much you’re spending compared with your credit limit.
Does carrying a credit card balance build 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. Best Rewards Credit Cards. Does Keeping a Balance Help Your Credit Score? Carrying a balance does nothing to help your credit score.
What does it mean to carry a balance on a credit card?
When you carry a balance on your credit card, it means you paid off a portion of your balance for that billing cycle and carried the rest over to the next cycle. It’s a good idea to make at least the minimum payment each month to remain in good standing with the credit card issuer.