Should You Carry a Balance On Your Credit Card?

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You may have heard that carrying a balance on your credit card each month is a positive credit score factor. Is this true? Or is it better to pay off your credit card in full each month? Looking at a credit card debt calculator might show you that you will pay more in the long run if you continue leaving a balance. Here is what you need to understand about keeping a balance on your credit card and whether it can actually be a positive credit score factor.

The Myth of Increasing Your Credit Score

The myth is that leaving a balance on your credit card shows you are trustworthy with your money. However, that is not the kind of behavior the credit bureaus value. In fact, keeping a balance is not a factor in your credit score at all. Lenders really want to see that you can run up a balance and then pay it off. Your credit utilization ratio, or how much of your credit limit you’ve used, is a factor. Your ability to make on-time payments is a significant positive factor as well. However, the existence of a balance alone is not a factor. It’s almost always better if you can achieve credit card debt payoff in any given month.

The Reality of Credit Card Balance

Do you understand what is a good APR for a credit card? Hopefully, you did when you chose the card that carries the balance. Interest is the only thing you will get from carrying a credit card balance. Having a good APR may mean you accrue less interest, but you will still have interest, thanks to the rolling balance. The average APR on a credit card is around 20%, so keeping a balance could be costly in the long run compared to having no balance. Having a low balance means a small interest charge, but it’s still more than nothing. Plus, it won’t help your credit score.

Does a Rolling Balance Help Your Credit Score?

In short, no. The myth that a rolling balance helps your credit score likely comes from a misunderstanding of when your balance is reported to the three major credit bureaus. Your bank or lender sends your balance to both you and the credit bureaus at the same time. Between the time the statement is sent and the due date, you typically have a grace period of three weeks before interest accrues. That initial balance stays no matter how much you pay off in that time. The statement balance, not the amount of balance carried, is what gets reported to the bureaus.

 What Factors Into a Positive Credit Score?

There are two essential factors surrounding your credit card when it comes to your credit score: Your credit utilization ratio and payment history. Keeping your total utilization ratio lower than 30% and paying your credit card bill on time each month are two significant positive factors that can contribute to your credit score. Beyond these two, it’s better to focus on responsible financial habits and achieving credit card debt payoff as soon as possible.

 About Tally

 Tally wants to help you worry less about credit card debt. With Tally’s help, you could achieve credit card debt payoff faster, and the service makes the entire process as easy as possible. Through a Tally line of credit, you can pay off your credit card balances and then pay back Tally with one simple payment. The Tally app offers other resources, including a credit card interest calculator, so you can discover the true cost of your credit card debt. Plus, learn more about credit cards, budgeting, and more tips through the Tally blog. Credit card debt can feel insurmountable, but Tally is here to help. Check your eligibility today!

 Get help with credit card debt at https://www.meettally.com/

 Disclosures: Lines of credit issued by Cross River Bank, Member FDIC, or by Tally Technologies, Inc. (“Tally”), NMLS #1492782 (http://nmlsconsumeraccess.org); see your line of credit agreement. Lines of credit not available in all states.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.

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