Unless you have been living under a rock, you already know how much of a wallop possessing a poor credit score can have on all areas of your life. Without a good credit score car insurance costs more, it is difficult to find an apartment, you will always pay high interest rates and it may even keep you from landing a top notch job. For decades people believed you must carry a balance on at least one of your credit cards to achieve a good credit ranking, but is that really the truth? What really happens to your credit score when you carry a balance? Let’s take off the gloves and really examine the subject.
What is it Exactly to Carry a Balance?
Technically, an individual will carry a balance when he or she uses some of their pre-approved credit to pay for items and then does not immediately pay it back. Therefore, the selected credit company puts up the cash and the individual must pay them back. It’s not dissimilar to a loan. A balance can last just a day or for decades. That depends on if and when the individual pays it off. It can also be for any amount that encompasses your credit limit and is subject to interest fees if it is not paid off in full at the end of the first billing cycle after the purchase.
If You Carry a Balance Does it Boost Your Credit?
It seems like a straightforward question, but of course it cannot be that easy! When a person does carry a balance it means they owe a debt. Credit is built by eradicating debt and not by creating it. Simply put you can still have a terrific credit score without the strings that come when you carry a balance. Actually paying for that entire balance each month without carrying it over into another billing cycle will build your score and save you bucks because there will be no interest charged. Also your credit score is comprised of several different factors and not how much you use your cards. Credit agencies don’t care how high your balance is, they just want to know you are able and willing to make payments on it. Bear in mind when a high balance is carried it could be detrimental to your credit score. The golden rule is never use more than 30 percent of your credit limit at a particular time so you maintain an optimal credit utilization ratio.
Carry a Balance to Strengthen Your Credit Score
If the goal is to use your credit cards to enhance your credit score do not take on more debt and pay your balance in full each month. The second key component of this method is to never spend more than 30 percent of your allotted credit so that your score is not impacted negatively. While credit cards can help you create or improve your credit score, your financial future relies on paying off balances and retaining control over your funds. Never place yourself in unnecessary debt or carry a balance because you think it will help your credit score. While paying off your debts examine other means you can employ to increase your credit score without carrying a balance.