Carrying a Credit Card Balance Won’t Improve Your Credit. Here’s Why You Shouldn’t Fall for This Common Myth

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There’s a commonly held — but totally false — belief that you need to carry a balance on your credit card to build credit. This myth couldn’t be further from the truth, but experts say they often still hear it from credit card holders.

“This is the myth that I’ve been trying to bust my entire career,” says Beverly Harzog, a credit card expert and consumer finance analyst for U.S. News & World Report. “In essence, you believe that you have to pay interest in order to get a good credit score, but you can get a great credit score for free. It just takes time and patience, and paying your bills on time.”

That’s because your payment history — showing you can pay your bills on time each month, over time — is the most influential factor in your credit score. And keeping your balances low (or ideally no balance at all) also has a positive effect on the second-most influential factor, credit utilization ratio.

“It’s not necessary for you to carry a balance in order to build good credit,” says Anna N’Jie-Konte, CFP and founder of Dare to Dream Financial Planning. “What is necessary is showing that you use the card and that you pay it. That’s the most fundamental thing.”

Here’s everything you need to know about building your credit score so you can avoid falling for this common myth, and what to do if you’re currently carrying a balance on your credit card. 

How Carrying a Balance Affects Your Credit Score

There’s essentially “no benefit” to carrying a balance on your credit card, says Larry Sprung, CFP and founder of Mitlin Financial.

For starters, carrying a balance is expensive. Each day you don’t pay your statement balance in full past the monthly due date, you’ll accrue interest on the remaining balance until it’s paid. That can lead to a slippery slope of long-term debt, since most credit cards charge very high APRs — anywhere from 10% to more than 25% —  on balances you carry. 

Carrying a balance can also increase your credit utilization ratio. That’s the amount of total available credit you’re using compared with the total amount of credit that’s available to you. If you have a $5,000 credit limit, and carry a $3,000 balance month to month, for example, you’d have a high 60% utilization rate. Experts recommend keeping this ratio under 30%, though under 10% is ideal for credit-building. An increase in utilization has the potential to decrease your credit score, because it signals to lenders that you may be experiencing financial difficulty. 

Better Ways to Build Credit

Your credit score influences many different aspects of your financial life, from buying a car to buying a house or even renting an apartment. That’s why it’s critical to monitor your credit and make sure you’re practicing the habits that can help you build and maintain a solid credit score. 

Building credit can take time, but there are several ways to start — that don’t involve carrying a balance:

  • Pay your balance on time: Payment history makes up 30% of your credit score, so it’s important to not miss any payments. Automating your payments can help you stay on top of your credit card bills.
  • Keep your utilization ratio low: A 30% credit utilization ratio is as high as you want to go, according to experts, but you should aim to keep it as low as possible. 
  • Check your credit regularly: There’s a difference between your credit report and your credit score, but it’s important to have a pulse on both. Visit AnnualCreditReport.com to access your credit report. To check your credit score, log into your online account with your credit card issuer. 
  • Correct any mistakes on your credit report: Federal Reserve data shows one in five people have an error on their credit reports. Catching inconsistencies or mistakes on your credit report early can save you from being blindsided by a sudden dip in your credit score. 
  • Explore credit-boosting programs: Tools like Experian Boost, TransUnion’s eCredable Lift, and FICO’s UltraFICO Score leverage information not typically used in credit scoring data, such as banking history and utility payments, to help boost your score. But you’ll sign to actively sign up for these programs.

What to Do if You’re Carrying a Balance Now

If you’re currently carrying a balance on a credit card, focus on eliminating those debt balances before even more interest accrues. Even if you have other debts, tackling credit card debt first may save you more money long-term, since credit cards tend to carry higher interest than other loan types. 

One option to consider is transferring your debt to a balance transfer credit card. These cards offer introductory 0% APR for a limited time period — often 12, 15, or 18 months — during which you can make payments directly toward your balance without taking on more interest. This can help you save money in the long run, but only if you form a plan and commit to paying off your balance during the introductory 0% APR period. 

A few of NextAdvisor’s top picks for balance transfers include the U.S. Bank Visa® Platinum Card, Citi Simplicity® Card, and BankAmericard® Credit Card, among others. 

You could also take out a personal loan with a bank or credit union to consolidate your debt. Interest rates on these loans are determined by your credit score, income, and debt, so shop around to make sure you’re actually saving money by getting a personal loan with a better interest rate. Keep in mind there are usually up-front origination fees, which can be as high as 8% of the loan amount. 

If you’re looking for free or low-cost help with your debt, consider working with a nonprofit credit counseling agency. Credit counselors can be a great resource for advice on budgeting and money management, and they can also set you up on a debt-management plan (DMP) for a small fee. Accreditation is key, so look for the initials NFCC (the National Foundation for Credit Counseling) and FCAA (Financial Counseling Association of America) when searching for a reputable credit counselor. 

Bottom Line

Your credit score is never set in stone — it can move up or down depending on your credit habits. But carrying a balance on a credit card is not the way to increase your score, and can often have the opposite effect or lead to lasting debts. 

Pro Tip

If you have no credit history or poor credit history, checking your credit report and score is the first step to improving your credit. Having a full picture of where you stand now with your credit can help you better understand what you need to do differently to improve it.

Instead, the key to keeping a consistent good credit score is handling your debt responsibly every month. That means paying your credit card bills on time, paying your balances in full, and regularly checking your credit. And if you’re currently carrying a balance and struggling to pay it down, there are debt repayment options to help, like a balance transfer card with a long 0% interest period, debt consolidation loans, or consulting with a credit counselor.