Does Maintaining a Credit Card Balance Hurt Your Credit?

You may think that maintaining a credit balance should not affect your credit rating under the logic of "nothing gained and nothing lost," but a consistent balance can hurt your credit rating. If you maintain a really high balance, you can cause even more damage. You do not have to pay off the balance in full to reduce its damage.

Credit Utilization

A significant part of the "amounts owed" category -- worth 30 percent in total -- of your credit rating comes from the portion of your credit limit you use, or your credit utilization ratio. A single maxed-out credit card can take more than 45 points off your credit rating, and a high utilization ratio across all accounts does even more damage, according to Ellen Cannon of Bankrate.com. Ideally, you want a credit utilization ratio of lower than 10 percent. Because lenders report the balance on your last statement to the credit bureaus, paying off the bill but constantly keeping a high balance still hurts your credit score.

Other Factors

The FICO credit scoring formula gives you points for paying off balances in full every month or takes away points if you keep a balance on your credit cards. Also, any outstanding debt negatively affects your credit rating. This is especially true of credit card debt because it is unsecured debt, so there is less motivation to pay it off than a mortgage backed by your home.

Risk

Carrying any type of debt poses the risk that you forget to pay the bill on time. A single missed payment can drop your credit score by over 100 points, according to Les Christie of CNN. On the other hand, you do not want to cease use of the account. The FICO formula ignores accounts once you stop using them for more than six to 12 months.

Tip

Although you should pay off your credit card balance in full each month, you can lower your credit utilization ratio without touching the balance by asking your lenders for a higher credit limit. Many credit card companies will raise your limit without a credit check. If the lender wants to perform a credit check, you may want to forgo asking for a limit increase, because each inquiry takes a few points off your credit score and six or more are a serious derogatory event, according to the Fair Isaac Corp. Also, if you are prone to keeping a high balance, having extra credit available may drive you deeper into debt.