What Should Your Credit Card Balance Be?

Nicolas Cesare  | 

A credit card balance represents the money that you owe to your credit card company for the credit line that they have opened with you. Every transaction charged to your credit card builds the balance you will end up owing on your monthly bill. One of the biggest questions that new cardholders have is often: what should my credit card balance be?

Finding and maintaining the right balance is essential to getting the most out of your credit card and building up a good credit score. Here’s everything that you need to know about what a credit card balance is, and how it works.

Credit Utilization and Your Credit Card Balance

Many of us have heard horror stories about people whose credit card accounts have gotten out of control, forcing them into debt collections and destroying their credit scores. These stories are enough to scare many people into never using their credit cards, but this is actually a really bad idea.

In order to build and improve your credit score, it’s important that you make use of your credit card on a regular basis. Purchasing things with your credit card and then paying your bills at the end of the month shows credit companies — and the credit bureaus —  that you can manage debt responsibly, prompting them to raise your credit score as you continue to use and pay off your credit card. The amount of use your credit card gets is also known as credit utilization. This factors heavily into your credit score, so it is important to pay attention to it.

The takeaway here is that a reasonable level of credit card use is a good thing. So as a starting point for finding the right balance for your credit card account, you should be making regular use of your credit card — don’t shy away from credit cards completely.

Keep a Good Credit Utilization Ratio

Your credit utilization ratio is a number that represents your current balance compared to your overall line of credit. A $100 balance on a $1,000 line of credit, for example, would give you a credit utilization ratio of 10 percent. In spite of the fact that credit utilization ratios are expressed so well in pure numbers, there is no magic percentage for every credit card user to aim for.

Instead, try to recognize what a good credit utilization ratio is for your own unique credit situation. Try to find a ratio that hits these three points for you:

  • More than 0 percent utilization: Like we talked about above, you need to use your credit card at least some of the time in order to improve your credit score consistently. Utilizing 0 percent of your credit line won’t help you achieve this goal at all.
  • Stable spending habits: Don’t spend so much that you won’t be able to pay your bill at the end of the month. This is the closest you can come to a reliable maximum limit on your credit card balance. If you can’t pay off your balance in a timely fashion, then you may end up in credit card debt with a worse credit score than when you started.
  • Earning rewards: Don’t shy away from spending with your card when rewards are on the line. Similar to the first point, it can be tempting to spend very little on your credit card for fear of debt. However, as long as you’re being responsible, there’s no reason to keep your balance extremely low. Think about your credit card balance like you would your weight: having a very high weight can be bad, but having a very low weight can also be unhealthy. Instead, find a good number somewhere in the middle that works for you.

Never Pay Interest on Your Credit Card

If you carry a balance past the end of each billing cycle, you will inevitably be charged interest on that amount. Paying this interest is one of the biggest credit card mistakes that many people  can make. It gets expensive quickly, and it can more than cancel out the benefits of your rewards or travel miles.

Always remember that interest on your credit card balance is money that you’re choosing to pay. That’s right, when you end up with interest, you’re more or less handing money over to the credit card company that easily could’ve stayed in your wallet.

Instead of paying interest, pay off your complete credit card balance each month. If you find that your credit card statement is too high each month, then it may be time for you to reevaluate your spending habits. Try sticking to a budget each month so that you can keep your credit card bills manageable and maintain a healthy credit card balance.

You can find more tips and guides at our credit card learning center. Trying to build your credit? Visit our credit score resource center for more guides.

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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.