Carrying a credit card balance can affect your credit scores in several ways. However, the biggest impact is generally on your credit utilization ratio.
Credit utilization is a measure of how much of your available credit you’re using. It’s a comparison of the reported balance and the credit limit on a revolving credit account. For example, if you have a $1,000 balance on a credit card with a $4,000 credit limit, its utilization rate is 25%.
According to the Consumer Financial Protection Bureau, experts recommend keeping your credit utilization below 30% of your total available credit.
If a high utilization rate is hurting your scores, you may see your scores increase once a lower balance or higher credit limit is reported.
Credit card issuers often report balances around the end of the statement period. With many cards, this happens around three to four weeks before the bill is due. As a result, you could make credit card payments in full every month and still see the previous balance and utilization rate.
If you aren’t able to pay your balance at all, your credit card issuer will likely report the missed payment to one or all of the three major credit bureaus.
