Your credit balance plays a major role in determining your credit score. Common questions we hear people ask include:
“Do I need to carry a balance on my credit cards to improve my credit scores?”
“How much balance should I carry?”
When you’re trying to repair your credit or just maintain a good credit score, the best credit card balance is always $0. However, we recommend making a small purchase every 4-6 months (and then pay it off) to keep the card active.
Understanding Your Credit Score
Your credit score is simply a numeric grade showing how trustworthy you are as a credit borrower. Your credit score is based off a combination of factors. Information like account balances, payment history, credit limit, and account ages are used to create your credit score. Each of these components are given different weights.
- Payment History – the most heavily weighted factor at 35%
- Total credit card debt versus credit limits – 30%
- Length of credit history – 15%
- Types of debt or credit mix – 10%
- Credit inquiries – 10%
How do High Balances Affect Your Credit Score?
Your level of debt versus credit limit is called credit utilization. As you learned above, it’s the second biggest factor in determining your credit score. The lower your credit utilization, the better. This shows that you can responsibly use credit and not overextend yourself with high balances.
What is the Best Credit Card Balance?
As we said in the beginning, the best credit card balance is zero. But keep in mind, that’s only if you’re actively using your credit cards. If you’re able to use your credit cards and pay them off in full every month that is ideal. Plus you’ll earn some cashback rewards doing that with a lot of cards. A reasonable balance to keep to maintain a good credit score is at or below 30% of your limit. So if you have a card with a $1,000 credit limit, it’s ideal to keep it at $300 or less. If you’re continually maxing out your credit cards don’t be surprised to see a significant decline in your credit score.
Can I Use More than 30% if I Pay in Full Each Month?
If your credit card reports the balance before you have a chance to pay it down, that’s the balance that will be considered when your score is calculated. So if you like paying for everything with credit cards to earn points and rewards, it’s best to spread it out over a few different cards. Keeping all your cards active helps build your credit score and keeps your utilization rate below 30%. Generally, if you pay your balance in full every month, your credit score is going to be great.
Do you need help repairing your credit score? When you partner with a credit repair agency, you can save a lot of time and money, speed up your credit repair process, and learn strategies that will help you in the long term future.