Let’s be clear: Carrying over a balance on your credit card is NOT going to increase your credit score.

Any claim to the contrary is a myth!

It’s been debunked over and over again but I still hear people saying – and believing – that carrying over a balance on your credit card is good for your score.

I think there’s a reason that this fairy tale keeps getting re-told, and you should understand why.

Here’s what you need to know about your balance and a high credit score:

Transcript:

Can we just end this once and for all?!

It just drives me bananas to hear that so many people still believe (and I’m using air quotes here because what I’m about to say is not true): Your credit score gets better if you carry over a balance. This myth is so upsetting because it costs you so much money – I’d almost call it scam. Except it’s probably not some scam concocted by the credit card companies to take more of your money – well, maybe it is – I don’t know.

Here’s what I do know. The reason this myth won’t die, is because it can be a little, sorta, kinda true, but not like you think. Stay with me here. We need to go over how credit cards work so I can help you make sense of this. Did you know that there are two balances on your credit cards? Yes – There are two balances. The first is the running balance – how much you’ve spent until today.

Then there’s the statement balance. Go ahead and take a look at your most recent credit card statement. I know this is asking for a lot from some people who do almost anything to avoid looking at their statements, but I promise that understanding what I’m explaining to you right now will save you hundreds or thousands of dollars, maybe even in just this year. So rip open that envelope or log in to your account. Are you there yet? You got your statement in hand? Good. Take a look at the top of your statement for the dates – the start date and end date of this statement. So for example, in my most recent credit card statement, the dates are March 15th to April 13th. That means all of the purchases (and returns) made on that credit card in those 30 days adds up to this statement balance. That statement balance is due about 3 weeks after the close of the window. So in this example, the balance that I ran up from March 15th to April 13th would be due on May 8th. If you’re like me, and pay all your bills on the first of the month, you’d pay that bill on May 1st.

Now let’s say that your statement balance was $4,000 as of April 13th. The money you spend between April 14th and May 1st, when you pay the bill, will cause the running balance to keep going up. Let’s say in those couple of weeks you spent another $2,000. So your running balance would be $6,000. When you pay the entire statement balance of $4,000 on May 1st, you will have a running balance of $2,000 (which is 6,000 minus 4,000, right?). So on May 1st, after paying the full and complete balance off, you have a zero balance for that statement balance. You have not carried over a balance from the old statement to the current one. But because you’ve spent another $2,000 since that last statement window closed, you still have a running balance.

So maintaining a running balance on your credit card IS good for your credit assuming that your credit utilization is under 30%. If you’re wondering what credit utilization means, be sure to catch my video on the easiest way to get the best credit score. However, carrying a balance over from a previous statement is NOT the way to get better credit. It’s a way to get hit with interest that you should never, ever pay! So moral of the story, you can carry a running balance but do not, not, not carry a statement balance over. Pay off the full, complete, total statement balance before each due date and enjoy the perks of credit cards without falling for the trap of credit cards.

You might be thinking, well, lady, that sounds great. I’d love to pay off my statement balance in full, but I can’t. And yes, I totally get that being able to pay off a credit card balance in full is easier said than done. To be able to do that, and do it consistently, you need to be financially fit. That means having a system for your money that keeps you organized and on top of your money so that you’re set up to be able to cover all your bills and still have enough for savings, investments, and to enjoy life. That’s what I’m dedicated to helping you do. Check out chelseagg.com to see all the ways I can support your financial fitness journey.