What Is a Credit Card Balance?

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 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 known as your credit utilization ratio. This factors heavily into your credit score, so it is important to pay attention to it.

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%. 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% utilization: As previously mentioned,, you need to use your credit card in order to keep improving your credit score. Utilizing 0%of your credit line won’t help you achieve a desirable utilization rate..
  • Stable spending habits: Don’t spend so much that you won’t be able to pay your bill at the end of the month. If you can’t pay off your balance in a timely fashion, then you will likely end up in debt with a worse credit score than when you started.
  • Earning rewards: Don’t shy away from using your credit card when rewards are available. 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. Rewards, such as travel miles or discounts, are an excellent reason to use your credit card as long as you adhere to a budget.

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. Accumulating interest is one of the biggest credit card mistakes you could make. Interest can become expensive quickly, and cancel out the benefits of your rewards.

In order to avoid paying interest, prioritize paying 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 so you can keep your credit card bills manageable and maintain a healthy credit card balance.

The takeaway here is that a reasonable level of credit card use is a good thing, as long as you can pay off your debts. 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 using a credit card, but don’t buy what you won’t be able to pay off.


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