Do you have a balance on your credit card and you are wondering if it will hurt your credit?
Having a credit card means you are financially responsible to handle your payments and credits. You should try as much as possible not to spend more than you can pay for as this means carrying a balance on your credit.
People think that having a balance will help them build credit or keep their credit card active. This is far from what a balance actually does to your credit. If you want to know if having a balance hurts your credit, then keep reading;
What does it mean to have a balance on your credit
Having a balance means that you have borrowed money from your credit card issuer and have exceeded your grace period. You may have a balance on your credit because you needed to solve some financial problems or pay some urgent bills. Regardless, make sure not to have a balance on your credit frequently or for a long period.
When you have an active credit card with a balance, you are usually given a period of grace to make payment before it begins to accrue interest.If you do not make payments within your grace period then it may lead to paying back with interest and losing your grace period.
A balance on your credit means you will be charged interest on payment. Moreover, if you are carrying a credit card balance for the first-time, interest will be charged on your current balance and on new purchases you make with the card. However, it is advisable to make minor payments on your balance every month to avoid the risk of your balance turning into a long term credit card debt and to be on good terms with your creditors.
What does carrying a balance actually do
This may sound like bad news, but carrying a balance on your credit does more harm than good to your credit.
Well, this depends on how high or low your balance is. A high balance can drastically reduce your credit score and also have a negative effect on your credit history unlike a low balance. More so, a balance on your credit also means accruing interest based on your Annual Percentage Rate (APR). A low balance is easier to pay back than a high balance. So, you shouldn’t let your balance turn into a long term debt. If the balance on your credit is too high, it can lead to an unfavorable effect on your credit.
What does this mean?
When you exceed your grace period, APR kicks in and you will have to pay your balance with an interest of 15%.
Well, if you have a zero interest introductory offer then you won’t be charged interest for a period of time.
A balance on your credit card could also lead to a high credit utilization rate which greatly lowers your credit score.
A high credit utilization rate means that your credit limit has exceeded 30% of your card’s borrowing limit which should be kept at 10% for a good credit score.
In summary.
Carrying a balance on your credit does the following;
- Reduces your credit score
- Result in accrued interest which is charged based on your Annual Percentage rate (APR).
- May lead to a high credit utilization ratio especially if your balance is high
- Affects your credit history.
All these can hurt your credit especially when applying for a loan or a mortgage as they are all considered before your lenders entrust you any credit.
Your finances will also be affected because money received will be used first to pay up your balance. You may even end up having little or no money during the period of paying back your credit because you are paying with interest, especially if it’s a long term debt. It is evident that having a balance on your credit can cause so much damage not only to your credits but also to your finances.
But every problem has a solution right?
What do you do if you have a balance on your credit
You do not have to panic if you have a balance on your credit. If your balance is little you should pay back in full in a short time. If your balance is high, you may not be able to pay it up immediately but you should pay it up little by little. And even when you do, you may have to pay a lot of interest.
You do not have to wait until your next credit card payment is due, you can make payment anytime. Even though a high balance lowers your credit score and increases your credit utilization ratio, you can get back your credit score and your grace period by paying your balance in full. The best way to pay off your balance is to make a credit card payment that clears out your balance in full.
Is carrying a balance ever a good idea?
Having a balance means that your credit card was helpful in paying for some urgent expenses and minor bills. However, it could lead to a low credit score and a high credit utilization ratio.
It is best not to have a balance on your credit. Even if you do, it should only be for a short time and you should pay it back in full immediately.
Carrying a balance is never a good idea.
If you are carrying a balance to keep your card active then you should consider using your card each month for minor expenses that involve small transactions.
Conclusion
Do you have a balance on your credit? You do not have to feel embarrassed or sad if you do. Everyone carries a balance once in the course of using a credit card. You should consider paying back in full as fast as you can if you are carrying a balance on your credit. Don’t wait until your next credit card payment is due. The faster you pay back your balance , the less interest you pay and the faster you get back your credit score.
