What is a credit card balance and should you carry one?

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In a Nutshell

Credit cards offer a convenient way to pay for everyday purchases and can help you build your credit. But carrying a balance can cost you interest charges and could negatively affect your financial health. Paying off your card before the start of the next billing cycle can help you avoid these consequences.
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A credit card balance is the total amount of money that you currently owe on your credit card account, and that will carry over if not paid before the next billing cycle.

Your balance changes based on your account activity. When you make a purchase, your balance increases. When you make a payment, it decreases.

Purchases aren’t the only factor that can add to your current balance. A credit card balance can also include other charges incurred during the billing cycle, such as …

  • Cash advances
  • Balance transfers
  • Interest charges
  • Fees (such as annual fees or late fees)

If you can’t pay your bill in full and on time each month, the rest of the balance carries over to the next billing cycle. You build up interest charges on the portion of your balance that isn’t paid on time. So it’s generally a good idea to pay off your balance on your credit card each month and avoid carrying it over. If you don’t, you’ll spend more on your purchases in the long run, depending on how much interest accrues. And carrying a balance could also negatively affect your credit.

Read more to learn about how carrying a credit card balance can impact your financial health.

What does it mean to carry a credit card balance?

If you don’t pay your credit card bill on time and in full each month, whatever’s left (the unpaid balance) gets carried over to the next billing cycle. If you carry a balance, you’ll most likely be charged interest on the portion of the balance you didn’t pay based on the annual percentage rate, or APR, of your card.

If you have a zero-interest introductory offer, you won’t be charged interest for a specified period of time. But once the intro period is over and your APR kicks in, you’ll be subject to paying interest — which is around 20% on average for all credit cards as of May 2023 — on any new or remaining balance.

What is a good credit card balance?

It’s a common myth that carrying a balance on your credit card will help you build credit because card issuers earn money on your interest payments. But there’s no connection between your credit scores and how much interest credit card issuers earn from you. Your credit scores are typically determined by other factors, such as your record of on-time payments and credit utilization.

The reality is that carrying a balance could actually hurt your credit scores.

For example, carrying too high a balance could result in a high credit utilization rate — the percentage of your total credit limit that you’re currently using — which in turn may lower your scores.

Generally, you should aim for a credit utilization rate of less than 30%. So if your credit limit is $10,000, your total balances would need to be less than $3,000.

Is it OK to carry a credit card balance?

In general, it’s probably best not to carry a credit card balance. But sometimes you might find it impossible to pay your entire balance on time. In that situation, you’ll want to pay attention to how much you’re spending compared with your credit limit.

If you’ve reached your credit limit or are getting close to it, one of the following tactics could help you reduce the impact on your credit scores by lowering your credit utilization ratio:

  • Ask your credit card company to raise your credit limit (just remember that this could result in a hard credit inquiry).
  • Make more than one payment on your credit card account each month instead of waiting and paying one lump sum — this can help ensure your balance doesn’t get too high.

It’s also important to note that you don’t need to carry a balance to keep a card active. Keeping a card active is important, but there are many ways to do this — and one the simplest is to use your card to automatically pay a small expense that you pay monthly anyway (like your phone bill). Some checking accounts can be set up to pay the credit card bill in full when it’s due, automating the whole process.

What’s the difference between a minimum payment, statement balance and credit card balance?

While your credit card balance is the total amount you currently owe on your account, you’ll likely see other numbers on your credit card statement each month, such as:

  • Minimum payment: The minimum amount of money you have to pay to your credit card company by the due date in order to avoid being charged a late fee.
  • Statement balance: Made up of all the charges that were on your credit card at the end of your billing cycle, any balance carried over and any accrued interest. It doesn’t include things such as additional purchases, cash advances or balance transfers added to your balance after the billing cycle closed.

For your most up-to-date account information, you can often log into your account online or call your credit card company.

What the experts say about carrying a credit card balance

What is a good credit card balance?

“A good credit card balance is one that you can comfortably afford to pay off each month. Carrying a credit card balance can be expensive and damaging to your credit score, so it’s important to only charge purchases that you can afford to pay off in full each month.”

— Andrew Bryant, founder of Credit Weld

How can I make sure I don’t miss a credit card payment?

“The best thing you can do is set up the autopay feature to automatically pay your credit card in full each month and make sure there’s enough in your checking account to cover it. This will ensure the bill is paid each month and reduce the risk of overpaying.”

 — Annie Hanson, financial coach and owner of Mindfully Money

Should I pay off my balance, even with a 0% APR offer?

“If you do have a 0% APR Introductory offer, you should still only put charges on your credit card that you could otherwise pay off at the end of the billing cycle. Missing a payment could void the 0% APR offer, which means your balance could start accruing interest sooner than you may have initially planned.”

Phil Dengler, co-owner of The Vacationer

How much of my credit card limit should I use?

“My top tip is to keep your total credit utilization below 30%. For example, if your credit limit is $5,000, do not spend more than $1,500 on your credit cards. Don’t have high utilization on any single card even if you have low utilization on the other cards, as the high utilization on that one card can have a negative impact on your credit score.”

Shawn Plummer, CEO of The Annuity Expert

Next steps

Carrying a credit card balance might be necessary at times, but it generally won’t help you build credit. It might end up costing you money if it becomes credit card debt — and that can pull down your credit scores.

If you’re concerned about keeping your credit card account active so you’ll benefit from the continuing credit history, you can still avoid carrying a balance. One way is to charge at least one small transaction to your card that you pay in full each month.

In general, paying attention to your credit card balance can help you monitor your spending to remain within budget, avoid interest rate changes, and keep your credit utilization low.

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.