Thursday, August 22, 2019

How Credit Card Balances Affect Credit Scores

Is it better to pay off the entire balance on a credit card each month, or to always leave a small balance to carry over?

There is a common myth that carrying a balance on your credit card from month to month can benefit your credit scores, but that is not true. Ideally, you should pay off your credit card in full every month.

Leaving a balance will not help your credit scores. All it will do is cost you money in the form of interest.

The most important factor in credit scoring is always your payment history — whether or not you make all your payments on time. The second most important factor is your utilization rate, or balance-to-limit ratio. The lower your utilization rate, the better for your credit scores.

It's Best to Pay Your Credit Card Balance in Full Each Month

If you are trying to establish a strong payment history, you can do so by making small purchases on your credit card each month, paying the balance in full, and making sure all payments are made on time.

If you cannot pay the balance in full, keep the balance as low as possible. You should never carry a balance of more than 30 percent of your credit limit on any one card or in total. The lower your balances, the better it will be for your credit scores.

Making small purchases and then paying them off right away will keep the card active and keep your balance well below your credit limit. This demonstrates that you consistently manage debt well and can help increase your credit scores.

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