Is It Better to Leave a Small Balance on Your Credit Card?

Leaving a small balance on your credit card is a common practice but is it actually a good idea? In this article we’ll dive into the pros and cons of carrying a credit card balance and help you decide if it makes sense for your financial situation.

What Does It Mean to Leave a Small Balance?

Leaving a small balance on your credit card simply means not paying off the entire statement balance by the due date. For example if your statement shows you owe $1,000 you might pay $950 and carry the remaining $50 balance over to the next billing cycle.

The idea is to keep a tiny portion of your balance unpaid to demonstrate that you’re actively using the card Some people believe this can help build your credit score over time

The Pros of Leaving a Small Balance

Here are some potential benefits of leaving a small unpaid balance on your credit card:

• May help build credit – Carrying a small balance could show lenders that you’re actively using credit, which can strengthen your credit profile. However, it’s debatable how much of an impact this really has.

• Keeps account active – Having a balance, even a tiny one, helps keep your account open and active. Inactive cards may eventually be closed by the issuer.

• Acts as a reminder – Seeing a small balance serves as a cue to make your next payment. This can help avoid missed payments if you tend to forget due dates.

• Provides a credit cushion – A small buffer gives wiggle room in case you overspend one month. It prevents your balance from zeroing out completely.

• May be more practical – Some people find it easier to manage small monthly balances based on their income and payment cycles.

The Cons of Leaving a Small Balance

Here are some potential downsides to consider:

• Accrues interest – Any unpaid balance will start accruing interest based on your card’s APR. Even a small amount can add up over time.

• Increases credit utilization – Carrying a balance increases your credit utilization ratio, which can lower your credit score if too high.

• Encourages debt – Having a rolling balance makes it easy to accumulate and carry larger balances month to month. This builds debt rather than financial responsibility.

• Forfeits grace period – Most cards offer an interest-free grace period when balances are paid in full each month. Carrying a balance forfeits the grace period.

• Possibility of late fees – If you forget to pay even the small carried balance one month, you could incur late fees.

• Myth about building credit – Many experts agree there’s no credit score advantage to carrying a small balance versus paying in full each month.

Expert Opinions on Leaving a Small Balance

Financial experts seem to agree that carrying a credit card balance is generally not beneficial or recommended. Here are a few authoritative perspectives on the topic:

• “It’s a myth that carrying a balance helps build credit…the best practice is to avoid carrying a balance.” – Experian

• “We recommend paying your balances off in full every month.” – Consumer Financial Protection Bureau

• “You do not need to carry a balance to have a good credit score.” – Credit Karma

• “Carrying a balance won’t help boost your credit scores.” – NerdWallet

The consensus is that paying in full avoids interest charges, keeps utilization low, prevents debt, and demonstrates responsible credit management.

When Does Leaving a Small Balance Make Sense?

Here are a few scenarios where carrying a small credit card balance could be reasonable:

• If you occasionally need flexibility with due dates and income schedules.

• To keep old credit card accounts open and active.

• If you are very disciplined about minimizing and paying down balances each month.

• To build a thin credit file for a short time.

• If the interest on a small balance is negligible to you.

However, these situations do not apply to everyone. You really need to assess your own spending and repayment habits.

Tips to Avoid Unwanted Credit Card Balances

If you want to pay your card in full but struggle to do so each month, here are some tips:

• Make payments as early in the cycle as possible. This limits interest fees.

• Pay more than the minimum due to chip away at balances faster.

• Set up automatic payments for the full balance or a fixed amount.

• Use balance transfer or low introductory APR offers strategically.

• Only use cards that fit within your budget and don’t tempt overspending.

• Build an emergency savings fund to avoid relying on credit cards during hardships.

The Bottom Line

Overall, credit experts tend to recommend paying your credit card balance in full and on time whenever possible. But an occasional small balance is unlikely to do major damage, especially if repaid quickly.

Evaluate your own financial habits and situation to determine if you can responsibly manage a revolving balance. And aim to minimize interest fees above all else. With the right approach, you can use credit cards strategically without incurring debt or damage to your credit score.