How Carrying a Balance Can Affect Your Credit

Carrying a credit card balance can impact your credit utilization rate, an important credit-scoring factor

There are many reasons you might not pay off your credit card bill in full. Maybe there’s a large expense you need to pay off over time. Or maybe your credit card has a promotional annual percentage rate (APR) offer and purchases aren’t accruing interest yet. 

Wondering if carrying a balance impacts your credit scores? Read on to take a deeper dive into the relationship between credit card balances and credit scores. 

Does Carrying a Balance Affect Your Credit Scores?

Carrying a credit card balance can affect your credit scores in several ways. However, the biggest impact is generally on your credit utilization ratio. 

Credit utilization is a measure of how much of your available credit you’re using. It’s a comparison of the reported balance and the credit limit on a revolving credit account. For example, if you have a $1,000 balance on a credit card with a $4,000 credit limit, its utilization rate is 25%.

According to the Consumer Financial Protection Bureau (CFPB), experts recommend keeping your credit utilization below 30% of your total available credit.

If a high utilization rate is hurting your scores, you may see your scores increase once a lower balance or higher credit limit is reported. 

Credit card issuers often report balances around the end of the statement period. With many cards, this happens around three to four weeks before the bill is due. As a result, you could pay your bill in full every month and still see the previous balance and utilization rate.

Should You Leave a Balance on Your Credit Card?

If you can, it’s generally a good idea to pay off your credit card balance instead of revolving the debt. 

If your credit card has a grace period and you pay the statement balance in full every month, you won’t pay interest on your purchases. But if you carry a balance, your purchases could quickly start to accrue interest. 

According to the CFPB, it’s a myth that you should leave a balance on your credit card to help your credit. 

If your card has an introductory 0% APR offer, you can consider paying off your balance over time because it’s not accruing interest. Just be aware that carrying that balance could still impact your credit utilization ratio—and ultimately your credit scores. Plus, once the intro 0% APR offer ends, the standard APR kicks in. And that’s when interest starts to accrue. 

Benefits of Paying Off Your Credit Card

There are several benefits to paying your credit card balances in full each month. Some are related to your credit scores, while others are related to personal finances and creditworthiness in general: 

  • Avoid interest. Paying your card in full each month by the due date can help you avoid paying interest on purchases. 
  • Maintain a low utilization rate. It may be easier to maintain a low utilization rate if you don’t carry a balance, accrue interest or let your balance grow during your statement period. 
  • Lower your debt-to-income (DTI) ratio. In addition to credit scores, lenders will often consider your DTI ratio—a comparison of your monthly income and debt payments. Carrying a credit card balance can lead to a higher DTI ratio, which may make it more difficult or expensive to borrow money. 
  • Show a positive trend in your payment history. Some creditors and credit-scoring models look for trends in your payment history. Having a history of paying your bill in full every month—even if you had a high reported balance—may be good for your creditworthiness.

Manage Your Credit Card Balance With the Big Picture in Mind

Paying off credit card balances in full every month could help you avoid paying interest. Only using a small portion of your available credit can make this easier. And it could lead to a lower credit utilization rate that can help your credit scores. 

However, paying credit card bills in full isn’t always a realistic option. And if your card has a promotional interest rate, it might make sense to focus on other debts or bills first. While carrying a balance might not be ideal for your credit scores, it might be necessary until you pay off the credit card debt. Just remember to always make at least the minimum payment on time to keep your account in good standing.

Learn more about Capital One’s response to COVID-19 and resources available to customers. For information about COVID-19, head over to the Centers for Disease Control and Prevention

Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

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