The amount of debt you’re carrying is 30% of your credit score—the second biggest factor after payment history—so your credit card balance obviously impacts your credit score. Having high balances can hurt your credit score because it raises your credit utilization—the ratio of your credit card balance to your credit limit.
Some people, however, believe that carrying a balance is necessary to build a good credit score. Others have concerns that a zero balance can harm their credit scores. Fortunately, it’s not true—a zero balance won’t bring down your credit score unless you have a zero balance because you haven’t been using your credit card. In that case, the credit card issuer may stop sending credit report updates for that account and may even close the credit card, both of which can affect your credit score.
Zero Balance and Your Credit Report
Having a zero balance on your credit card doesn’t mean that the zero balance will show up on your credit report or that the zero balance will be used to calculate your credit score. Here’s why: your credit card details arereported at various times throughout the calendar month (usually on the account statement closing date). Because of this, your credit card balance might not be $0 on the day your credit card issuer reports to the credit bureaus, depending on whether you've used your credit card after you paid the full balance.
For example, if you make a $100 purchaseon the 5th of the month and pay it in full on the 17th of the month, but your credit report was updated on the 12th of the month, your credit report won't show a zero balance. Instead, it will reflect the balance on the 12th.
Note
Unless your balance is always zero, your credit report will probably show balance higher than what you're currently carrying.
Fortunately, carrying a balance won't hurt your credit score as long as the balance you do have isn'ttoo high (above 30% of the credit limit). Higher credit card balances are considered riskier as creditors and lenders weigh whether you can handle an additional debt obligation.
Inactive Credit Cards
If you have a $0 balance for several months because you're not using your credit cards at all, your credit score could take a hit. When a credit card is inactive for several months or longer, your credit card issuer may stop sending account updates to the credit bureaus. Without a recent history of your borrowing showing on your credit report, potential creditors and lenders will have a harder time gauging whether you're a responsible borrower.
Making small periodic purchases and paying in full can keep your credit card balance at $0 and keep your account open and active for credit reporting.
Note
Having a $0 credit card balance isn't essential even for having a perfect credit score. According to FICO, consumers with a perfect FICO score of 850 have an average credit card balance of approximately $13,000 and a credit utilization of 4.1%.
Multiple Credit Cards
The average consumers carries four credit cards with an average balance of $6,194. If you're someone with multiple credit cards, each with a balance, paying off just one of those credit cards to zero can help boost your credit score.
The credit scoring calculation considers both your individual credit utilization on each of your credit cards and your overall credit utilization. Paying off one full balance brings down the credit utilization across all your credit cards, showing that you're not using the full amount of credit available to you.
Getting the Balance You Want To Report
If you’re applying for a major loan soon and want to reduce your balances to improve your chances of being approved, make a large lump sum payment to your credit card and don’t make any additional purchases for a few weeks. That way, you can be sure a low (or zero) balance shows up on your credit report and is reflected in your credit score.
Frequently Asked Questions (FAQs)
When should you close a credit card with a zero balance?
If you have a card with a zero balance, it might be tempting to close your account. Keep in mind your total available credit factors into your credit score. Closing your account will lower your available credit. That doesn't mean you shouldn't close the credit card, though. If you have a compelling reason for closing it, like wanting to avoid accumulating more debt or not liking the card's terms, it may be best to close the account.
What is a credit card balance transfer?
A credit card balance transfer is when you move the balance from one credit card to another. Some cards have introductory balance transfer offers. For example, they might offer 0% interest on balance transfers for 18 months. If you're paying more than 0%, it might be worth it to move the balance to the new card and pay it off before the interest rate increases, just be aware of the transaction fees collected on many balance transfers.
FAQs
Considering your mix of credit makes up 10% of your FICO credit score, paying off the only line of installment credit can cost you some points. You paid off your lowest balance account: The outstanding balances across all of your open credit accounts, or your amounts owed, makes up 30% of your credit score.
Does having credit cards with zero balance hurt your credit score? ›
Lenders want to know both how reliable and profitable you are. If you have a zero balance on credit accounts, you show you have paid back your borrowed money. A zero balance won't harm or help your credit.
What happens if you pay a credit card with 0 balance? ›
If your credit card balance is zero at the end of your billing cycle, you won't owe any interest. By comparison, let's say you have a $10,000 balance at the end of your billing cycle; at 22.77% interest, you'll owe an additional $183.85. And that number will only increase with each billing cycle you carry a balance.
Why did my credit score go down after I paid off all my credit cards? ›
You've lowered the average age of your accounts
Closing out accounts you've had for a long time, even if you haven't recently used them, can lower your score. The length of your credit history accounts for 15 percent of your credit score.
Why is my credit card balance 0 after paying it off? ›
If you have no available credit after paying off your credit card, it's possible the card's issuer put a hold on the account. The reasons for the hold may include exceeding your credit limit or missing payments, especially if you do so repeatedly.
Is it better to pay off credit cards or leave a small balance? ›
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
Is it good to keep a credit card with no balance? ›
An active card can help your credit, but a zero balance is best for your score. June 6, 2024, at 12:06 p.m. Not paying your credit card balance in full will negatively impact your credit score and force you to pay interest.
How to get 800 credit score? ›
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
How to raise your credit score 200 points in 30 days? ›
How to Raise Your Credit Score by 200 Points
- Get More Credit Accounts.
- Pay Down High Credit Card Balances.
- Always Make On-Time Payments.
- Keep the Accounts that You Already Have.
- Dispute Incorrect Items on Your Credit Report.
How long after paying off debt will my credit scores change? The three nationwide CRAs generally receive new information from your creditors and lenders every 30 to 45 days. If you've recently paid off a debt, it may take more than a month to see any changes in your credit scores.
Experts recommend keeping your credit utilization ratio below 30%. If you choose to close a credit card with a zero balance, your total credit limit will decrease. As a result, your credit utilization ratio will increase, particularly if you carry a balance on other credit cards.
What is the credit limit for Capital One Quicksilver $10000? ›
You can get a Capital One Quicksilver credit limit of $10,000 if your credit score and overall creditworthiness are good enough. You will need at least good credit (a credit score of 700+). But the higher your credit score is, the better are your chances of getting a $10,000 credit limit.
Do you get charged interest if your balance is zero? ›
If you started the cycle with a zero balance, your statement balance is made up of all the new purchases you made during that month's billing cycle. If you pay that balance in full by the due date (assuming your card has a grace period), you're in the clear when it comes to interest on those purchases.
Does zero balance account affect credit score? ›
If you don't have sufficient balance in your savings account to deal with unexpected expenses, it can affect your credit score. This will especially be noticed when you use your credit card to make debt payments instead of using a savings account balance.
Does having unused credit cards hurt credit score? ›
Keeping an unused credit card open can help keep your credit score higher. Keep in mind: Even if you don't use your card often (or at all), it's important to remember that an open credit card account still affects two key credit scoring factors: the length of your credit history and your credit utilization rate.
Is 0% credit card use good? ›
While a 0% utilization is certainly better than having a high CUR, it's not as good as something in the single digits. Depending on the scoring model used, some experts recommend aiming to keep your credit utilization rate at 10% (or below) as a healthy goal to get the best credit score.
Is having no credit cards good for credit score? ›
It's completely acceptable to avoid getting a credit card. Consumers can pay entirely with cash, check or debit card and still build a positive credit history through other types of loans.
