Should I Leave A Small Balance On My Credit Card?

Most Americans don’t know that they’re ruining their credit.

The survey conducted by LendingTree, one of the oldest online lending marketplaces, found that 65 percent of respondents believe the common misconception that carrying a balance will improve their credit. But here’s the cold, hard truth: it can torpedo your credit score and leave you responsible for the interest on the balance.

“This is the cockroach of credit-scoring myths – it just absolutely will not die,” said Matt Schulz, chief credit analyst at LendingTree. “The myth hurts cardholders because it costs them money. If they’re only carrying a small balance, it may not cost them a huge amount of money, but over time, it adds up.”

Should I carry a balance on my credit card?

Leaving a small balance on your credit card is not necessary and may even cost you money in the form of interest charges. It's generally a good practice to pay off your credit card balance in full each month to avoid interest charges and maintain a good credit score.

Carrying a credit card balance from month to month can affect your utilization rate, which is the second most influential factor in your credit score. Some people choose to leave a small balance on their credit card to help improve their credit utilization ratio,

Your utilization rate is how much credit you use compared to the credit you can access (i.e., your credit card limit). Maxing out your credit card is never a good idea. Companies that look at your credit report will think you’re struggling financially and might not trust you because of it.

Always try to keep your credit utilization under 30 percent.

Find out: What Factors Affect Your Credit Score

“Maxing out a card sends your credit utilization rate – or how much debt you have compared to your available credit – soaring,” Schulz said. “And when you’re struggling to pay down your current debts, issuers may become less likely to want to lend you more money.”

A better plan of action would be to put smaller purchases on your credit cards and pay off the debt at the end of the month.

Should I pay off my credit card in full?

Yes, it's generally a good practice to pay off your credit card balance in full each month if you can afford to do so. By paying off your credit card balance in full, you'll avoid interest charges, which can be very expensive over time.

LendingTree also found that 35 percent of Americans don’t actually know their credit card’s interest rate. Not a big deal if you’ve been clearing your debts every month. Huge deal if you’re part of the nearly 50 percent that don’t.

Not only do half of the survey respondents carry over their credit balance, but they also made at least one late credit card payment – another good way to destroy your credit score.

Find out: 5 Steps to Improve Your Credit Score

“A single payment that is 30 days or more late can devastate your credit, making your score fall 50 to 100 points, depending on your individual circumstances,” Schulz said. “Once that is disrupted, the consequences are massive.”

Ideally, you should check your credit report at least once a year, twice if you’re able to. But nearly 3 in 10 people haven’t checked in the last six months.

Find out: How to Get Your Free Annual Credit Reports Securely

To avoid getting sucked into more debt than you can handle, make sure you check your score and monthly credit statements, pay off your credit in full, and always make payments on time.