Can I Improve my Credit Score By Carrying a Balance?


It’s estimated that nearly 60 percent of all credit card holders – or about 110 million Americans – currently have some sort of a balance on their credit card. And we’re willing to bet that if you ask, a good portion of these credit card holders will tell you that carrying debt over month-to-month isn’t a bad thing. In fact, we’re willing to bet that many will tell you that you can improve your credit score by carrying a balance.


This is one of the most common credit score misconceptions – and while carrying over a balance won’t necessarily hurt your credit score depending on the amount, it certainly will not help it. What’s more is that carrying over a balance is likely to cost you much more money long-term when you consider interest rates. The average credit card interest rate today is more than 19 percent. Let’s take a closer look at this myth:


Why Carrying a Balance Won’t Help Your Credit Score

Like we said above, just because you’re carrying a balance on your credit card doesn’t mean your score will be negatively impacted. But it certainly won’t improve your credit score by carrying a balance. Good credit card management such as paying down your debt or paying your credit card off will help your score, however, because you’ll be freeing up more of your credit utilization, or improving your debt-to-credit ratio. If you’re unable to pay off your credit card balance in full each month, it’s recommended that your credit utilization is no greater than 30 percent to maintain a good credit score. This means that if your credit card maximum is $1,000, you’ll want to owe no more than $300. If your credit utilization ratio goes above 30 percent, then you’ll likely begin to see your score dip.


Costly Balances

It’s recommended to only charge what you know you can pay off each month. However, we realize that this isn’t realistic for many Americans. But aside from the fact that you can’t improve your credit score by carrying a balance, it could also cost you big bucks in the long term. That’s because if you’re carrying a balance over from month-to-month, you’ll have to pay interest on this balance – and that can add up over time, especially if you get into a habit of only making the minimum payment and letting you balance balloon.


Credit Card Management Tips

So what are some of the best practices to keep your credit score high as it pertains to managing your credit card? Here’s a look:


  • Make your payments on time: If nothing else, you want to ensure you’re making at least the minimum payment by your due date. Payment history accounts for 35 percent of your FICO score.
  • Set alerts to keep your utilization ratio in check: Many credit card companies will allow you to set email or text message alerts for if your debt-to-credit ratio goes above 30 percent on your card.
  • Prioritize your credit card: Being that it likely has a much higher interest rate than your other debt, you should be prioritizing paying down debt on your credit card to save money in the long run. If you are able to make multiple payments each month to keep the balance low, consider doing so.
  • Be careful about closing other accounts: If you have multiple credit cards, keep in mind that the sum of them will factor into your overall limit and debt-to-credit ratio. So if you lose a certain amount of credit by closing one or more cards, you could inadvertently cause your utilization ratio to rise – and that will cause your credit score to drop.