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What does carrying a balance really mean?

Established Member

What does carrying a balance really mean?

After checking my TU score I see the only "ding" on the report is for too having too many credit cards with balances.  In fact it advises "What to do about this: You should consider reducing the number of your
accounts that carry a balance and keeping your balances low."

 

In my entire credit history life, I've always paid off every card completely in full every month on time.  So what does keeping a balance really mean?  I pay off my cards on the same day of every month, a few days before the due date and always have. 

 

So,

  1.  What exactly is carrying a balance?  I always thought it meant carrying debt past the payment due date, but I'm obviously wrong on this
  2.  What is an optimum number of credit cards to use each month?  I have more cards than I need (I've opened up two cards for a discount at a store not realizing that I was hurting my credit scores short term), but I don't use many of them I just don't want to close anything for fear of lowering my score/credit history.  Keep in mind I was taught at a very young age to avoid debt at all costs, so I've never even been slightly tempted to live above my means so having extra cards is not a temptation for me fortunately.
  3.  Is there a better time to pay off credit cards, like once a week maybe?  Then would I not be carrying a balance?

Just wondering how to optimize my scores, my TU score was 792 btw, so its not bad BUT I wanted it to be over 800 Smiley Tongue(which it was 2 years ago when I checked so I guess this balance thing knocked me off my pedestal LOL).

Message 1 of 6
5 REPLIES
Established Member

Re: What does carrying a balance really mean?

Also I should add, I'm checking my scores now because I plan to start looking into buying a home in about a year, so if there are any things I can do over the next 12 months to really optimize my scores I would like to implement them now.

 

 

Message 2 of 6
Community Leader
Epic Contributor

Re: What does carrying a balance really mean?

While apparently not a highly-weighted sub-category of scoring of util of credit, FICO looks at the % of cards carrying a balance when reported, meaning anything more than $0.  They apparently consider that to be some indication of the creditor's reliance on discretionary debt to meet monthly obligations.

 

Five cards with three reporting any balance would thus be 60% with balance.

With only one card, the consumer will always be at 0 or 100%, with two cards, either 0, 50, or 100%, three cards, 0, 33, 67. or 100%, and so on.

Thus, the number of revolving can help in scoring of this relatively minor sub-category.

Message 3 of 6
Valued Contributor

Re: What does carrying a balance really mean?

Regarding Utilization, I personally have had the best results when only one card shows a balance, and that balance is less than 5% of my total available credit.  

 

Distantarray recently posted a graph made by Bobwang from Creditboards in this thread and it shows the utilization effect on different credit profiles.  Very useful information.

 

3-26-15: FICO EXP: 828 - EQU:820 - TRAN: 828 - AVG: 825 +275 points from JUN 2008 - MY CREDIT JOURNAL

Message 4 of 6
Regular Contributor

Re: What does carrying a balance really mean?


zdawg wrote:

After checking my TU score I see the only "ding" on the report is for too having too many credit cards with balances.  In fact it advises "What to do about this: You should consider reducing the number of your
accounts that carry a balance and keeping your balances low."

 

In my entire credit history life, I've always paid off every card completely in full every month on time.  So what does keeping a balance really mean?  I pay off my cards on the same day of every month, a few days before the due date and always have. 

 

So,

  1.  What exactly is carrying a balance?  I always thought it meant carrying debt past the payment due date, but I'm obviously wrong on this
  2.  What is an optimum number of credit cards to use each month?  I have more cards than I need (I've opened up two cards for a discount at a store not realizing that I was hurting my credit scores short term), but I don't use many of them I just don't want to close anything for fear of lowering my score/credit history.  Keep in mind I was taught at a very young age to avoid debt at all costs, so I've never even been slightly tempted to live above my means so having extra cards is not a temptation for me fortunately.
  3.  Is there a better time to pay off credit cards, like once a week maybe?  Then would I not be carrying a balance?

Just wondering how to optimize my scores, my TU score was 792 btw, so its not bad BUT I wanted it to be over 800 Smiley Tongue(which it was 2 years ago when I checked so I guess this balance thing knocked me off my pedestal LOL).


1) Carrying a balance means that the credit card had a balance at the statement end date that was reported to the CRA's. If you want to avoid having a balance show, pay the card down to $0 by the statement ending date so a $0 balance will be reported.

2) Doesn't matter how many you have or how many you use - the only facts that matter for FICO scoring is the number of cards that report a balance. In my experience, FICO dings your score when 50% or more of your cards carry a balance. I have around 11 cards and I use almost all of them depending on the rewards offered, but I always try to make sure no more than 5 carry a balance. I always pay the balances in full unless it is a 0.0% interest rate. I keep my total Utilization around 15-20% unless I am planning on applying for credit, then I work it down to under 10% for maximum FICO scoring.

FICO: EQ 769, TU 762 , EX ???

Message 5 of 6
Established Member

Re: What does carrying a balance really mean?

Ok thanks for all the replies everyone!

 

 

Message 6 of 6