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News: Carry a Credit Card Balance or Pay in Full - Credit-Land.com

There is popular belief that carrying a small balance on your credit card will help you build credit. However, carrying a balance does nothing to help your credit score. It just triggers interest payments making you pay interest on what's left over and any new purchases. So, in fact, it may result in an absolutely opposite outcome.

When you carry a balance, it can affect your credit utilization ratio. Credit utilization is how much of your available credit you're using across all your revolving credit accounts. A too high credit utilization ratio can hurt your credit score. Generally, it's recommended to maintain a credit utilization ratio under 30%, and the lower the better.

It's good to know that credit card issuers often report balances to the credit bureaus around the end of an account's statement period. As a result, you may still see a balance on your credit report even if you pay off your credit cards in full every month.

If you're concerned about the balance's effect on your credit, you can pay your credit card bill biweekly before your statement date or call the issuer to find out when they report the balances and make sure you pay off close to that date.

Despite a common myth, it's generally a good idea to pay off your credit card balance when you can, rather than carrying revolving debt. It helps you improve your credit scores and also comes with other benefits that include the following:

  • No interest charges: paying your card in full each month by the due date can help you avoid paying interest on new purchases.
  • Lower credit utilization ratio: when you do not let your balance grow and don't accrue interest, it may be easier to maintain a low credit utilization ratio.
  • Lower debt-to-income (DTI) ratio: some lenders compare your monthly income and overall debt. When you do not carry a balance, your DTI ratio is low, which may make it easier and less expensive to borrow money.

All these things can have a positive impact on your credit scores, personal finances and creditworthiness. If you are struggling to make payments on time or have accrued interest, you can consider a balance transfer credit card. Such a card could let you take advantage of a low introductory APR to pay off your debt.

tags : Credit Cards Credit Score Payments

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