Does Carrying a Balance Improve Credit?

It may sound counter-intuitive, but carrying a balance on a credit card can improve your credit rating. However you do not need to carry a balance to build credit. Also, you do not pay finance charges when you pay off a balance monthly. You should avoid putting too much money on your credit card if you only want to keep it active to improve your credit rating.

Identification

You do not have to carry a balance to improve your credit rating. As long as you charge something to the card every few months the lender reports the account as active and the on-time payments build positive credit history. You can say carrying a balance builds credit too, but because paying off the bill by the due date still builds credit, it is unnecessary.

Considerations

The availability of credit always presents the danger of overspending or maxing out the card in case of an emergency. Debt load counts for 30 percent of your FICO score, so you want to limit use of any credit card to the bare minimum necessary. You also have to worry about credit utilization, or percent of credit limit used, which falls under the category of "amount owed."

Too Many Credit Cards

Sometimes you want a credit card to go inactive. Although you can never have too much available credit, more than seven active revolving accounts on your credit report lowers your score a few points, according to Dayana Yochim of The Motley Fool. On the other hand, once a credit card goes inactive, you lose the limit on the card and thus increase your credit utilization ratio.

Tip

If you have an account you just want to keep active, put a small charge, such as a cellphone bill, on it every month and pay it off immediately. Purchasing an item and paying it off over several months as long as you can meet the minimum payment is acceptable, but less ideal than paying the balance in full. You should also have an active installment account, such as a personal loan or mortgage, to diversify the types of credit you use.