Should I Leave a Small Balance on My Credit Card? What You Need to Know

Jason SteeleUpdated October 12, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

There’s a myth that leaving a small balance on a credit card is better than paying it in full. But that’s simply not true.In fact, carrying a balance on a credit card can lead to recurring debt, which may negatively affect your credit score. An outstanding balance also accumulates interest charges, which means you end up paying more.Leaving a balance on your card can cost you. It’s important to understand the risks of leaving a balance on your account and the best ways to pay your bills.

Why Leave a Balance?

Leaving a balance means that you pay less than the total amount due on your credit card bill. Once you make the partial payment, an outstanding balance remains. Not to be confused with a negative balance on a credit card, an outstanding balance is the full amount you owe, including interest charges.So why leave a balance? One reason is that you may need to use your money for other expenses and you can’t afford to pay your credit card bill in full. In this case, paying the minimum payment due, which is one of the credit card terms you should know, may help you get back on your feet financially. But some people believe that leaving a balance on the account will be good for their credit score when credit card companies report to credit bureaus. But the truth is actually just the opposite: The more debt you have, the worse your credit score will be.

Why Pay off Carry-Over Debt?

At least two things can happen if you choose to carry a balance. First, you’ll have to pay interest and other fees. Second, carrying a high balance on your credit card can hurt your credit score. Once you start paying off credit card debt, you free yourself of these potential consequences.When it comes to your credit score, most lenders use a FICO score, which is a credit score model. It’s determined by calculating the following five factors:

Payment history (35%)
Amounts owed or credit utilization (30%)
Length of credit history (15%)
New credit (10%)
Credit mix (10%)

As you can see, leaving a balance on your card does not help your score. Making regular on-time payments and paying down your debt are extremely important, however.If you think leaving a balance on your card helps show that your card is active, there are better ways to do that. Use the card sparingly–approximately every three or four months–to keep your account active and to be able to pay off the balance in full without hurting your credit score.

Is It Better to Pay in Full or Carry a Small Balance on Credit Cards?

Despite the myth, it’s a better idea to pay bills in full every month rather than carrying a small balance on your credit card. Carrying a balance does not help your credit score, and it costs you money in interest charges. A good rule of thumb is to pay off as much of your balance as possible every month. A major benefit of paying credit card bills consistently and in full is that you won’t be charged interest. But if you pay only the minimum due, you’ll start to accrue daily interest on your remaining balance. This is one part of how credit cards function.One thing that can affect your balance is a credit card refund. When you return something, the merchant will credit your account. This can help lower your balance, but it may take several days for the refund to show up on your account. Plus it might not kick in until after your payment is due. Check your account online for the latest transaction information.

When Carrying a Balance Hurts Your Credit Score

Carrying a balance on your credit card can harm your credit score, especially if the balance is high. When you accumulate debt, you hurt your credit utilization ratio, which is the amount of your available credit that you’re using. To keep your credit score high, you want your credit utilization ratio to be under 30%. If you’re carrying a big balance on your card, you can push your credit card utilization ratio beyond that percentage, which will lower your credit score.If you’re looking for a credit card to help you build your credit score, consider a secured credit card. This type of card requires a refundable security deposit. By making consistent, on-time payments on a secured card, you may be able to build your credit within a year.To get rid of debt, you might want to explore getting a 0% balance transfer card. Balance transfer cards can help you consolidate your debt at a lower interest rate or monthly payment. And they can improve your credit utilization ratio. Finally, if you have a lot of debt, you may be eligible to receive credit card debt forgiveness from the card issuer. However, this information will go into your credit history and will damage your credit score, so consider the possible ramifications carefully.

How to Deal With Balances

The best way to ensure that a balance on your credit card account doesn’t negatively affect your credit score is to pay the balance in full and on time. This will help to keep your utilization rate low, which will help you have good credit.

The Takeaway

The belief that leaving a balance on your credit card to help your credit score is a myth. In fact, leaving a balance will cost you money in interest and could lead to the accumulation of too much debt. It’s much better to pay your balance in full and on time each month. That’s what will help you get, and maintain, a good credit score. If you’re looking for a new credit card with more favorable terms, or one that will help you build your credit score, Lantern by SoFi can help. Our online marketplace allows you to browse different types of cards, including credit-building cards, and compare numerous credit card offers easily and conveniently all in one place.

Frequently Asked Questions

Is it better to pay off your credit card or keep a balance?

How much of a balance should I leave on my credit card?

Does carrying a credit card balance boost my FICO score?

Can you leave a credit card open with no balance?

Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Photo credit: iStock/mediaphotos

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About the Author

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.

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