Carrying a balance on your credit cards won’t help your credit score
Many people think carrying a balance on your credit card proves your ability manage payments responsibly while building history, but this simply isn’t true.
Head of Growth at Tally
September 26, 2022
Pop quiz! When your credit card payment comes due, which should you do if you’re trying to improve your credit score?
Pay just the minimum payment.
Pay a little bit under and carry a balance to next month.
Pay the full amount to bring your balance to zero.
Should I leave a small balance on my credit card? The correct answer might surprise you.
The myth of carrying a balance
If you’re like 55 percent of Americans, you may believe carrying a balance will improve your score. It doesn’t. Carrying a balance is not the type of responsible card behavior credit bureaus look for.
Of all the information credit bureaus use to calculate your score, your ability to carry a balance is not one of them — on-time payments matter. So does how much available credit you’re using. Carrying over any portion of your balance does not have the credit-boosting benefits many believe it does.
If you can pay off your balance in full, do so. Leaving a balance on purpose isn’t helpful.
The reality of carrying a balance
In reality, the only thing carrying a balance will do for you is cost you money in interest.
When you carry a balance, interest starts accruing on that balance. On average, credit card APRs are now over 20%, so credit card debt is quite costly.
But what about small amounts? Should I leave a small balance on my credit card?
A small balance won’t cost you too much in interest, but it also won’t positively affect your credit score. If you can afford to do so, pay off the credit card in full.
Will carrying a balance help my credit score?
Many believe paying their full balance means banks will report a $0 balance to the credit bureaus. They think it’s best to carry a balance to prove their ability to manage their card payments responsibly while building history.
This simply isn’t true.
The confusion likely stems from a misunderstanding when your balance gets reported to credit bureaus. When you receive your monthly statement, credit bureaus simultaneously receive the same information. Your bank sends your balance to both.
Between the statement and due dates, you typically have a grace period of around three weeks before any interest accrues.
No matter how much you pay off, that initial balance is the same in the eyes of credit bureaus. The billed charges on your statement are the same, whether you pay the minimum payment, your entire balance or an amount in between.
In other words, the statement balance gets reported to the credit bureaus — not the amount of the carried balance.
Credit bureaus also track if you’ve made minimum payments on time. If you’re making on-time payments, you’ll receive the same credit toward your score whether you pay the minimum or your full balance.
While you won’t necessarily hurt your credit by carrying a balance, you’ll take a hit on your wallet. Credit card interest rates are notoriously high, so even carrying a small balance adds up. That’s why if you can afford to make your payments in full every month, you should.
You’ll continue to build a good credit history and won’t pay a dime in interest.
Free ways to help your credit score
If carrying a balance won’t improve your score, what other ways can you help boost your credit?
Making on-time payments
Making on-time payments towards any debt will boost your credit rating. This includes payments made towards:
The key is to make payments on time.
Using Experian Boost
Normally, phone and other common monthly bills do not contribute to your credit rating.
However, Experian Boost allows you to enroll certain bills in a credit reporting program to start contributing to your credit history.
Becoming an authorized user
An authorized user is added to an existing credit card or loan account. For example, a wife could add a spouse as an authorized user on her credit card.
Becoming an authorized user helps piggyback off the positive credit history of the primary user. If they have good credit and good payment history, this can boost your score substantially. Keep in mind the reverse is also true. The cardholder carrying debt or missing payments could reflect on your credit history.
Asking for higher credit limits
A significant factor in your credit score is called credit utilization. It’s the percentage of available credit you are actively using. For example, if you have $10,000 in total credit limits and have current debts of $2,000, you have a credit utilization of 20%.
If you have existing debt, raising your credit limits can help reduce your credit utilization, boosting your score. You’ll need to call your credit card provider to request a credit limit increase.
Disputing errors on your credit reports
All sorts of information is reported on your credit report, and mistakes can happen. Perhaps a payment was incorrectly marked as late, or a bill went to collections despite being paid on time.
These negative marks on your credit can drag down your score. You can remove these negative marks by fixing errors on your credit report and help restore your credit score.
First, you’ll need to check your report for errors. You can request a free report once per year at AnnualCreditReport.com. If you notice any errors, you can contact the credit bureaus to provide proof of the mistake.
For those wondering, “Should I leave a small balance on my credit card?” the answer is no. There’s no need to. Balances are not reported based on how much you’ve paid; they’re reported according to your statement balance on the closing date.
For a healthy credit score and happy wallet, do your best to pay your balances in full monthly. Carrying a balance isn’t necessarily bad for your score, but it will cost you interest.
Do you have existing credit card debt to tackle? Tally† may be able to help. Tally helps qualifying applicants consolidate their credit card balances into a lower interest line of credit. Learn how Tally works here.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.