My Credit Card Balance Help My Credit Score: A good credit score is essential because it determines whether you will borrow money in the future and the interest rate. A high credit score means you’re a low-risk borrower, making lenders more likely to approve your loan application and offer you a lower interest rate.
On the other hand, a low credit score could lead to your loan application being denied or result in you having to pay a higher interest rate. It’s a question that crosses the minds of many credit cardholders: will paying my credit card balance every month help my credit score?
Let’s learn more.
How Does It Help the Credit Score?
Generally, paying off your credit cards balance in full every month will help your credit score. First, it shows that you’re using your credit responsibly. Second, it keeps your credit utilization ratio low. Your credit-to-income ratio is the percentage of your available credit that you’re using at any given time.
Your card use ratio would’ve been 50%, for instance, if you charged $500 to a $1,000 bank card limit in a single month. Ideally, you want to keep your credit-to-income ratio below 30%, and paying your balance in full every month will help you do that.
Third, paying your balance in full every month will prevent you from charging interest as you can learn more from Freedom Debt Relief. When you carry a balance on your credit card from one month to the next, you’re typically charged interest. The higher your balance is, the more interest you’ll pay. Paying your balance in full every month will help you avoid paying interest and save you money.
What If I Can’t Pay My Balance in Full Every Month?
If you can’t pay your balance in full every month, the best thing you can do is keep your balance as low as possible. The lower your balance is, the lower your credit-to-income ratio. You should also pay more than the minimum payment due every month. Making only the minimum payment will prolong the repayment period and increase the interest you’ll pay over time.
Common Credit Card Mistakes to Avoid?
There are a few common mistakes that people make with their credit cards that can hurt their credit score. These include:
Closing Unused Credit Cards
It might seem like closing an unused credit card would be an excellent way to avoid accumulating debt, but it can hurt your credit score. When you close a credit card, you lose the credit associated with that card, increasing your credit-to-income ratio and spoiling your score.
Another mistake is paying off credit cards late. Even one late payment can hurt your credit score, so paying your bill every month is essential. You should also avoid maxing out your credit card.
If you charge up to your credit limit, it will hurt your credit score. Try to keep your balance well below your credit limit to avoid damaging your score. This is why tracking your transactions is always good.
You can create a daily or weekly monitoring as this can help know when you’re too low. This is where investing in software comes in. Some tools can assist you by setting reminders and even evaluating your expenditures.
Only Paying the Minimum Balance
People often make one mistake with their credit cards, only paying the minimum balance. If you only pay the minimum balance, you’ll pay more interest over time, and it will take longer to pay off your debt. It’s essential to make more than the minimum payment every month to avoid paying interest and damaging your credit score.
Using a Credit Card for Everyday Items
Another mistake people make is using their credit cards for everyday items. If you’re using your credit card for gas, groceries, and other regular expenses, you’re probably not paying your balance every month. This can hurt your credit score by increasing your credit-to-income ratio. Try to use your credit card only for larger purchases that you can pay off in full each month.
Create a plan to use the credit card so that you don’t make any mistakes that could hurt your credit score. It’s also important to remember that your credit score is a one-factor lenders look at when considering a loan. If you have a strong credit history and a good income, you may still get a loan even if your credit score isn’t perfect.
Chasing Credit Card Rewards
People often make the mistake of chasing credit card rewards. While it’s great to earn rewards, you shouldn’t spend more than you can afford to pay off each month. If you’re carrying a balance from one month to the next, you’re probably paying interest and canceling any rewards you earn. It’s essential to spend what you can afford to pay off each month to avoid paying interest and damaging your credit score.
Taking Cash Advances
Another mistake people make is taking cash advances from their credit cards. Cash advances usually have a higher interest rate than purchases, so you’ll pay more interest if you take a cash advance. Cash advances also don’t have a grace period, so you’ll immediately accrue interest. If possible, it’s best to avoid cash advances to avoid paying high-interest rates.
Using a Credit Card to Pay Medical Bills
People often use their credit cards to pay medical bills, but this can be a mistake. Medical bills can be expensive, and if you can’t pay them off in full each month, you’ll pay interest. It’s best to avoid using your credit card to pay medical bills. You can usually work out a payment plan with your medical provider if you can’t pay the bill.
Ignoring Your Debt
The final mistake people make ignoring their debt. If you’re carrying a balance on your credit card, you’re probably paying interest. Ignoring your debt will only make it worse. You’ll pay more interest over time and damage your credit score. It’s essential to face your debt head-on and pay it off.
Will paying my credit card balance every month help my credit score? Certainly paying off credit cards will undoubtedly help. Using your credit card wisely, you can avoid damaging your credit score. Remember to pay your balance in full every month and avoid closing unused credit cards, making late payments, and maxing out your credit card. If you can avoid these mistakes, you’ll be on your way to a great credit score.