Do I need to carry a balance on my credit cards to improve my credit scores? How much balance should I carry if any?
When it comes to credit repair and credit score maintenance, questions about balance are very common. The best credit card balance is $0, but $0 with no activity is not optimal. Your credit card balance is more than just the amount of money you owe to your credit card issuer. Let’s take a closer look at your credit card balance and how it affects your credit score.
First, you need to understand credit scores and what they represent. Your credit score is basically a numeric grade that shows your creditworthiness. Your credit score is based on information in your credit history, including credit cards, loans, and other debt accounts you hold. Information like account balances, payment history, credit limit, and the age of the account are used to calculate your credit score. Each factor is weighted differently.
- Payment history = 35%
- Total amount of debt and the outstanding debt versus your credit limits = 30%
- Length of credit history = 15%
- Types of debt called credit mix = 10%
- Credit inquiries = 10%
What High Balances Do to Your Credit Score
Your level of debt, or credit utilization, is the second biggest factor that affects your credit score. This is your credit card balances compared to your credit limits. Lower credit utilization is better because it shows you can responsibly use credit and not overextend yourself with high balances. And the opposite is true – higher credit card balances will lower your credit score.
What is a Good Credit Card Balance?
The best balance is $0, but that’s only possible if you never use your credit cards, which defeats the point of having them. A reasonable balance is at or below 30% of your credit limit. If you have a card with a credit limit of $1,000 it would be ideal to keep it at $300 or less. If you’re always maxing out your credit cards, you’ll notice a significant decline in your credit score.
More Credit Card Balance Considerations
What if you charge more than 30% of your credit limit but pay the balance down when your statement comes? 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. Generally, if you pay your balance in full every month, your credit score is going to be great. If you can’t pay in full, always make sure to make your minimum payments on time, and that will go a long way in helping maintain a good credit score.
Do you need help fixing your credit? 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.