To Carry a Credit Card Balance or Not: What the Credit Bureaus Say is Ideal

Millions of Americans are carrying credit card debt of some kind these days, but there are a lot of misconceptions about the ways in which this will affect their credit scores. How much debt is too much? Is there such a thing as too little? These are questions many consumers may have, but don't necessarily know the answers.

One of the biggest problems consumers may have in dealing with credit cards in general, apart from the difficulties it can cause for their finances, is that there are a lot of misconceptions about the various effects it can have on their credit scores. As such, taking the time to have some of them cleared up can help borrowers to better understand their needs when it comes to getting their credit back on track.

Is there such a thing as too much credit card debt?
The biggest misunderstanding many consumers may have about the ways in which their credit card debt affects their credit scores is that they think lenders want them to carry as much as possible. This is, however, not the case. It seems the idea that credit card issuers would want borrowers carrying as much debt as possible stems from the idea that if they owe a lot of money on these accounts, they will be continually making payments to the lenders, but what these financial institutions actually want to see is consumers with as little debt as possible, but who use their cards on a regular basis anyway.

The reason for this is simple: The more a borrower owes, the greater the risk for lenders should they run into financial difficulties. For instance, if a consumer owes $5,000 on their various cards, and loses his or her job, they are at considerably greater risk for not being able to pay their bills at all, and their lenders are simply not going to receive that money in some cases. On the other hand, if they owed $1,000 or less, the loss to each lender would be considerably diminished, or, if they carry no balances at all from one month to the next, nonexistent.

And as for whether there is such a thing as not carrying enough credit card debt, the answer is, as hinted above, no. However, borrowers who are successful in avoiding credit card debt or even spending altogether might want to be careful. Those accounts that go several months or more without being used may be subject to being closed automatically by the lenders controlling them if the inactivity goes on for too long. It is therefore important that consumers understand the rules related to the cards they own, and if there are any automatic account closings involved, it might be wise to use it to make a small purchase — even if it's for something as little as a pack of gum — every few months, then pay the balance off in full at the end of that month. This will help to ensure the accounts don't close altogether, which likewise can have a negative effect on credit scores in some instances, while also keeping balances at zero.

How does it affect one's credit score?
The amount of credit card debt carried by consumers makes up a substantial part of one's score, but it actually relates to how much of their total credit limits the balances owed take up. In general, lenders only want to see consumers carrying about 30 percent of their available balances or less for consumers who want to ensure this portion of their ratings are as good as they should be.

And because this one factor makes up 30 percent of their scores, borrowers should do all in their power to cut what is known as their "credit utilization ratio" to the lowest levels possible as a means of both improving their ratings and finances simultaneously. The best ways in which they can do this are to simply start making larger, more comprehensive payments into their existing debts (starting with the accounts carrying the highest interest rates, which tack on debt more quickly) and also spending less on their cards going forward. The combination of these two efforts can lead to significantly reduced borrowing costs overall, and more quickly slash obligations that might otherwise be rather burdensome.

However, this is just one aspect of properly dealing with consumers' credit scores. Another great way to make sure these ratings are as good as they could be is to regularly order copies of one's credit reports and check them over closely for any potentially unfair markings that might be dragging down one's scores. If any such entries are discovered, it can be helpful for borrowers to work with a credit repair company, which may be able to sort out the issues as soon as possible.