How Maintaining A Credit Card Balance Really Affects Your Credit Score

De-bunking the myth that you should keep a balance on your credit card

Shaun Plum
MoneyTips Contributor

Borrowing Credit Cards

How Maintaining A Credit Card Balance Really Affects Your Credit Score
November 15, 2016

Credit cards can empower people when used correctly, enabling consumers to access credit, ease cash flow problems, and make the most of the perks on offer. Several myths remain, though, including that to have an outstanding balance on a card will help build credit - this is not the case.

Carrying any outstanding balance on a credit card does not improve credit scores but can have a negative effect and bring it down. This is because credit ratings often take into account the ratio between the maximum limit of credit available and the current debt. The less money outstanding on a card, the larger the credit utilization ratio, and so the better the credit score.

Unless you are making use of a zero-interest period, outstanding balances will carry interest charges. This increases debt towards the limit and also means that you'll have to pay back more than you have used. This can spiral out of control and draw you into sticky financial situations.

There are times when completely paying off an outstanding debt isn't possible. In such cases it may make sense to transfer debt to a zero-interest card to buy yourself some time to pay it off. Overall, though, it is wise to pay off as much of your balance as possible. This could improve your credit score, ease your personal cash flow, and ensure that you can take advantage of access to the extra credit without paying more charges.

If you want more credit, check out MoneyTips' list of credit card offers.

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