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.
Carrying a balance on your credit cards is a common practice With daily expenses and emergencies popping up, it can be difficult to pay off your credit card in full every month. But does keeping a balance actually hurt your credit? Let’s take a closer look
What Does “Carrying a Balance” Mean?
When you carry a balance on your credit card, it means 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’ve left a $500 balance to carry over to the next month. This remaining balance is subjected to interest charges by your credit card company.
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
One of the biggest factors in your credit score is your credit utilization ratio. This measures how much of your total available credit you’re using. For example, if you have a total credit limit of $10,000 across all your cards and your balances add up to $3,000, your utilization is 30%
Experts recommend keeping your utilization below 30%. The lower the ratio, the better it is for your credit score. Carrying a high balance can negatively impact this ratio and hurt 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. First and foremost, paying off your credit cards saves you money that would otherwise go toward paying interest on their balances. Credit card issuers charge interest on the balance that remains unpaid after each months billing cycleâthe balance you “carry forward” to the next billing period. If you pay your balance in full, no balance carries forward, and you avoid interest charges. (If you use a card with a 0% introductory interest rate, you can carry a balance without paying interestâbut whatever balance that remains when the introductory period ends will be subject to interest charges.)
- Reduce your credit utilization. Bringing the balances on all your credit cards down to zero each month can help keep your credit utilization ratioâthe percentage of your total borrowing limit youre using on your credit cardsâlow and manageable. Utilization rate is a major factor in determining credit score for both the FICO® Score and VantageScore systems. If you find yourself regularly exceeding 30% of your borrowing limit, consider using a card with a higher limit (or getting one, if you dont have one), or ask your lender to raise the limit on your card.
- Prevent ballooning credit card debt. Paying your bills in full every month is the single best habit you can cultivate to make sure your credit card debt doesnt spiral out of control. Dont make a purchase with your credit card unless you have a plan to pay it off.
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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.
Outstanding balances on credit cards can even hurt your credit score, and this effect is most drastic once balances exceed about 30% of a cards 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.
This habit is particularly beneficial with regard to the latest versions of the FICO® ScoreÎ and VantageScore credit scoring systems, which can take advantage of “trended data” compiled 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?
Does carrying a balance on a 0 interest credit card affect credit?
While a credit card with an introductory 0 percent APR can help you manage new or existing debt, it can also cause you to overspend and carry a higher balance. If you carry your balance beyond the intro APR period, a 0 percent intro APR card can actually hurt your credit.Mar 12, 2025