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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.
Does Keeping a Balance Help Your Credit Score?
Carrying a balance does nothing to help your credit score. In fact, it works the other way around, says Jeff Richardson, senior vice president of marketing and communications at credit-scoring company VantageScore Solutions.
Your balance relative to your credit limit on each card, or credit utilization ratio, can hurt your credit score if it is too high. Generally, maintain a credit utilization ratio under 30%, and lower is better, Richardson says.
Keeping your credit cards active can also help your credit score. If you don’t use your card and the issuer closes it, your credit can take a hit because you lose payment history and available credit.
Even if an inactive account remains open, it might not be included in your credit score, says Rod Griffin, senior director of public education and advocacy for Experian.
“Credit scores require not just that you have the account, but activity in the account to show you can manage it well,” Griffin says.
Still, actively using a credit card is not the same as carrying a balance. You can use your credit card, pay it off monthly and get credit-boosting benefits without interest charges.
Should You Pay Your Credit Card in Full or Carry a Small Balance?
Try to pay off your credit card monthly if possible. When you carry a balance, even a small one, you owe interest, Griffin says.
“From a credit-scoring perspective, there’s no reason to carry a balance on a credit card,” he says.
Even if you pay off your card each month, don’t be surprised if your credit report still shows a balance.
Typically, the statement balance on your monthly bill is reported to the credit bureaus. You could pay the balance before your statement date if you’re concerned about the balance’s effect on your credit.
“Always try to pay in full,” Richardson says. “If you do roll over a small balance, as long as your credit limit is much higher than that balance, you’re in good shape.”
How Can Carrying a Balance Hurt Your Credit?
Amounts owed is one of the most important factors that affect your credit score, second only to your payment history.
“The higher the balance, the greater the sign of risk,” Griffin says. “High balances are a strong indicator of risk that will drag down your credit scores.”
And making minimum payments could become tougher the higher your balances go. If you don’t pay the minimum on time, you could owe a late fee and will hurt your credit score.
What Helps Your Credit Score the Most?
Here are some ways to rapidly improve your credit score:
- Lower or eliminate credit card balances. Paying down balances on credit cards is one of the fastest ways to improve your credit score, Griffin says.
- Make all of your payments on time. Because payment history is the most important factor in your FICO score, consistently making on-time payments will help it.
- Fix late payments ASAP. The credit bureaus don’t consider a payment late until you’ve missed a full billing cycle, so you can make your payment a few days late before it lands on your credit report.
- Remove late payments. Ask your lender to remove a late payment from your credit report if you’ve caught up and your account is in good shape. You might get turned down, but it doesn’t hurt to ask.
- Use credit-boosting tools. Sign up for programs such as Experian Boost, which can add points to your credit score by counting utility, streaming service and cellphone payments toward your credit score.
- Monitor your credit history. Griffin warns against forgotten cards with unpaid balances, which may go to collections and accrue interest charges and fees. Check your credit report as often as you’d like with no harm to your credit score; free weekly reports are available through April 2022 at AnnualCreditReport.com.
- Avoid closing accounts. The older your accounts, the better for your credit score.
- Vary your credit products. Another factor, credit mix, looks for diversity of accounts to see how well you manage different types of credit. For example, your credit might improve if you take out a loan and have never had one.
- Limit credit applications. Multiple hard inquiries on your credit report in a short window can ding your score. If you’re planning to apply for a mortgage or car loan, avoid other new inquiries if possible.
Best Credit Cards for Carrying a Balance
While a $0 balance is ideal, it is not always possible. If you need to carry a balance, a credit card with a 0% introductory APR offer can help you save on interest as you pay it off. Consider these top-rated 0% APR card options:
- Bank of America Customized Cash Rewards credit card: Get a 15-month 0% introductory APR on purchases as well as balance transfers in the first 60 days. You’ll also get a $200 cash rewards bonus when you spend at least $1,000 in the first 90 days.
- Citi Custom Cash Card: You can take advantage of a 15-month 0% introductory APR on purchases and balance transfers. You will pay no annual fee, and you can earn 5% cash back on up to $500 in the category where you spend the most each billing cycle.
- Wells Fargo Reflect Card: Take up to 21 months to pay off your balance interest free with this card. When you make your minimum payments on time during the 18-month introductory period, you will get an additional three months at 0% APR.