There is a lot of important information to know about your credit card, and one number you always want to know is your credit card balance. This is the amount of money you owe the creditor for funds you have borrowed but have not yet paid back. Although every purchase or cash advance you have made is what primarily makes up this number, it also comprises an interest rate and fees. Due to the fact that the higher your balance is the more money you owe, it is natural to think that maintaining a zero credit card balance is best. However, that is not always the case.
The credit reporting agencies, such as TransUnion and Equifax, do not just want to see that you can accumulate credit. They also consider whether you are borrowing anything and whether you can pay it back. For this reason, there are benefits to keeping a small credit card balance and paying it off at the end of each month.
Why Maintaining a Reasonable Credit Card Balance Matters
It is easy to think that a credit card company gave you a card so you can max it out and pay it back whenever you can. This is how many people get into trouble with their credit card. The higher your credit card balance is, though, the higher your monthly minimum payment is. With each month that passes, you end up owing more and more on the card.
Always having a high credit card balance will greatly affect your credit score with the reporting agencies. Your score is also lowered the closer you get to your credit limit because that indicates that you need to borrow a lot of money, but you cannot afford to pay it back.
Of course, it is also important to keep a low credit card balance because the lower your balance, the more money you will have to spend on the card. Understanding what your credit card balance is will allow you to stay within that limit, so your credit card is not denied.
How High Should Your Credit Card Balance Be?
Walking the line between carrying a small balance, and one that is difficult to manage and pay off is indeed a delicate balance. The general rule of thumb is that you should maintain a credit card balance that is close to 30 percent of your credit limit. For example, if you have a credit card with a $1,000 limit, you should maintain a credit card balance of approximately $300 or lower.
One person’s good credit card balance is not necessarily another’s, however. You should never maintain a credit card balance that you cannot pay off at the end of the month. If you do not pay your full balance, that balance will collect interest and other fees, forcing you to run into a number of problems.
High Balances on Multiple Cards Greatly Hurt Your Credit Score
Just as it is important to keep a fairly low balance on one card, it is even more important when you hold multiple cards. If you are close to maxing out two or more cards, the credit card companies and credit reporting agencies will view that negatively. They will see it as you needing to borrow a lot of money, without the ability to pay any of it back.
In this circumstance, you can still use the 30 percent credit balance as a rule. However, you may want to consider keeping each balance even lower, so you have a better chance of paying off all of your balances every month.
Maintaining a Good Credit Card Balance
It is important to understand how much of a percentage is a reasonable credit card balance. It is even more important that you keep your credit card balance under 30 percent, or lower, until you pay off your credit card at the end of the month. To do this, you have to regularly check the amount of your balance.
Most credit card companies and banks today have apps that you can download right onto your phone. As soon as you open the app, you can see your credit card balance and fairly easily determine if your credit balance is a little high.
Ideally, any time your balance started to climb higher than you would like it, you would pay it off as soon as possible. Unfortunately, many people cannot do this at the end of every month. In these situations, it is best to simply stop using the card until you can start to pay down your balance, even if you still have plenty of credit left on the card.
You also do not have to try to only pay off your balance at the end of every month. Just as checking your balance is as easy as downloading an app, it is just as easy to put money towards your credit balance through an app on your phone. The credit card issuer’s app may allow you to make payments.
Your credit score will also not take a plunge as soon as you carry a high credit card balance. If you still have good credit, you can call your credit card company and ask them to increase your credit limit. This will lower your credit utilization rate, or how much of your limit you are spending. If you can do this, your credit score will not be as negatively affected, as long as you do not spend that extra credit you have been given.
Have You Been Sued by a Creditor? Call Our Florida Debt Defense Lawyers
Getting into trouble with credit card debt does not only lower your credit score, but it can also result in a debt collector filing a lawsuit against you to recover it, too. If a creditor has taken action against you, or you fear they are about to, call our Fort Lauderdale debt defense lawyers today. At Loan Lawyers, we have the experience necessary to defend you in a lawsuit and give you the best chance of a positive outcome. Call us today at (954) 523-HELP (4357) or contact us online to schedule your free consultation.
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