Does Carrying a Balance Hurt Your Credit Score?

Does carrying a balance on your credit card lower your credit score? It can, but it all depends on several factors. These factors most often extend beyond the specific credit card that may have a balance. In fact, your credit score is determined by several factors which apply to the totality of your credit picture.

In regards to the credit card in question, carrying a balance only hurts you if it, along with other credit balances you may have, takes up more than 30% of your available credit. This applies to all your revolving accounts such credit cards and lines of credit, as well as your installment loans like your mortgage and other loans.

Credit cards are an important thing to have on your credit report, because they show very well, over time, how well you manage credit. But as previously mentioned, it’s important to keep the balance as low as possible, preferably below 30% of your available credit limit.

In addition, make sure to pay your bills on time. Even missing a payment on a small balance can seriously ding your credit score. Timeliness of debt repayment shows future lenders you are a responsible borrower.

Finally, make sure you pay off more than the minimum payment if possible. In many cases, paying the minimum on your bill will actually cause your balance to grow over time, eventually utilizing an undesired percentage of your available credit.

Bottom line, carrying a balance is not as important as how much of a balance you are carrying relative to your available credit. Disciplined use is a must when it comes to credit. Future creditors don’t want to see you avoid credit altogether, but rather see a strong history of you managing it properly.


About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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