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A good credit score will help you qualify for loans and access better loan and insurance rates.
Purposely carrying a credit card balance can hurt your credit instead of helping it.
If youre falling into this trap, its time to shift your approach.
How Does Carrying a Credit Card Balance Affect Your Credit Score?
Your FICO credit score is based on five categories of information, each weighted differently.
Heres the breakdown of these five components and how much they impact your score.
The second largest factor in your credit score is the total amount you owe.
Higher credit utilization tells lenders that you may be overextended, resulting in alower credit score.
So, how does this relate to carrying a monthly credit card balance?
When you carry a monthly credit card balance, your total amount owed and credit utilization ratio increase.
Your credit score may go down somewhat as a result.
Even if your score doesnt decrease, purposely carrying a balance will not boost your credit.
Consistently making on-time payments on all your debts will help improve this factor, ultimately boosting your credit score.
Then, set a budget that allocates money to cover all your minimum payments and necessities first.
Sign up forautomatic payments or payment remindersso you dont miss any due dates.
If you still have trouble making your payments on time, you could always contact your creditors for help.
Keep Your Balances Low
give a shot to keep your debt balances as low as possible.
Lower debt balances will reduce yourcredit utilization ratioand total amount owed, helping to improve your credit score.
Some people find it helpful to pay for things in cash instead of charging their credit cards.
Using cash may make you more mindful of your purchases and reduce yourcredit card balance.
If you have extra money one month, consider putting it toward one of your debt balances.
Extra payments will bring down your balances faster and get you closer to the higher credit score you want.
A longer credit history leads to higher credit scores.
Only apply for new credit accounts when you absolutely need them.
These may include installment accounts and revolving accounts.
However, its probably not worth applying for a new line of credit simply to improve your score.
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