Content provided by Bankrate.com. New York Post and its content partners earn compensation from the affiliate companies that appear below. This content does not include all available financial offers, and compensation may impact how and where links appear in the content.
Credit scores are one of the most confusing parts of owning a credit card.
There are many factors that go into your score. There are also all kinds of misconceptions about what actually affects your score.
One common belief is that carrying a balance on your card won’t affect your score. Some say it may even improve your score: A recent survey found that 65% of Americans believe this.
Carrying a balance on your credit card can indeed affect your score – but not in the way you’d probably like. Here’s what you need to know.
No, carrying a balance on your credit card does not help your score
Carrying a balance can potentially hurt your credit score.
When you carry a balance, you’re not paying your credit card bill in full. It leaves some amount of debt on your card. This debt accumulates interest, making it more difficult to pay off over time.
Carrying a balance can affect two key aspects of your credit score: credit utilization and payment history.
How carrying a balance affects credit utilization
Credit utilization refers to the percentage of your available credit that you’re using. The lower this percentage, the better it is for your credit score.
When you carry a balance, your credit utilization tends to increase. This is especially true if you use a significant amount of your available credit.
A high credit utilization signals to lenders that you may be struggling to pay back your debts.
Most experts recommend keeping your credit utilization below 30% of your total credit limit. For example, if your credit limit is $5,000, you should aim to keep your balance below $1,500.
How carrying a balance affects payment history
Payment history also plays a crucial role in determining your credit score. If you consistently carry a balance and make only minimum payments — or miss payments altogether — it can negatively impact your payment history. Lenders want to see that you’re responsible and reliable in making timely payments.
What happens when you carry a balance on your credit card?
Carrying a balance means that you’re not paying off the total amount owed on your card by the due date. The unpaid debt carries over to the next billing cycle and accumulates interest. Your card issuer will charge you interest based on your card’s annual percentage rate (APR).
Credit card interest rates are notoriously high — the average was 20.72% as of Nov. 2023. As interest accumulates, it becomes more challenging to pay off the debt. This can create a cycle of debt that’s hard to break out of.
Depending on your card, you may also get charged a late payment fee if you don’t pay at least the minimum by the due date.
How to avoid carrying a credit card balance
To avoid carrying a credit card balance month to month, try these strategies:
- Track your expenses. Create a budget to manage your expenses and make sure you’re spending within your means.
- Pay your balance in full. Make it a habit to pay off your credit card balance in full each month. By doing so, you avoid accumulating interest charges.
- Set up payment reminders. Missing a credit card payment can lead to carrying a balance. Set up reminders or automatic payments to ensure you never miss a due date. This way, you can avoid late payment fees and potential damage to your credit score.
- Use cash or debit for regular spending instead. If you’re worried having a credit card will lead you into debt, consider using cash or debit cards, and use your credit card for emergencies only.
- Consider a balance transfer card. If you have multiple card balances, you may consider using a 0% APR credit card or a balance transfer credit card. These options can help you save on interest charges and make it easier to manage your payments.
The bottom line
Now that you know carrying a balance won’t actually help your credit score, you can take steps to boost your credit over time. According to credit expert John Ulzheimer, the pathway to a good credit score is fairly simple.
“Pay on time, every month without exception,” he says. “Maintain balances on credit cards that don’t exceed 10% of your credit limits. Those are the big ones.”
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.