Does Having a Credit Card Balance Hurt Your Credit Score?

You probably know that paying down debt is good for your credit score. But there’s a persistent myth about credit card balances and credit scores. Some people say that carrying a small balance from month to month somehow helps your credit score.

The idea that carrying a balance helps your credit score is totally false. Read on to learn the facts about how your balance affects your credit score.

How Your Credit Card Balance Affects Your Credit Score

There are five things that determine your credit score. These credit score factors break down as follows:

  • Payment history (35%)
  • Credit utilization (30%)
  • Average age of credit (15%)
  • Credit mix (10%)
  • Hard inquiries and new credit (10%)

As you can see, your credit utilization, or the percentage of open credit that you’re using, accounts for 30% of your credit score. The rule of thumb is that you don’t want your credit utilization ratio to climb higher than 30%. If you can get it to 0%, that’s ideal.

Here’s where it gets a bit tricky. If you’re regularly using credit, a balance will probably show up on your credit report. That’s because you don’t control when your credit card company reports activity to the bureaus.

For example, suppose you have a $5,000 limit and a zero balance. Then you make a $100 purchase. If your creditor then reports to the bureau, you’ll have a 2% credit utilization ratio ($5,000/$100 = 2%), even if the bill hasn’t come due yet.

Having a credit utilization ratio above 0% isn’t necessarily something to worry about, though. According to Experian, consumers with a perfect 850 FICO score have an average credit utilization of 5.8%.

That doesn’t mean the average person with a perfect score is carrying a 5.8% balance from month to month. When your creditor reports to the bureaus, they’re simply providing a snapshot of your account at that given moment. Even if you pay off your balance in full each month, it’s likely that your account will show that you’re using up part of your open credit.

If your credit utilization ratio is 0% because you never use your credit cards, your score could suffer. When you’re not making regular credit purchases and you don’t have outstanding loans, you aren’t generating activity that’s reported to the credit bureaus. That’s harmful because payment history is even more important than your credit utilization.

Moreover, your credit card company could cancel your card due to inactivity. That hurts your score in two ways: Your credit utilization could increase because the amount of open credit you have will drop. If the card was also one of your older accounts, it will also lower your average length of credit.

Should You Carry a Credit Card Balance?

There’s no benefit to your credit score when you don’t pay off your balance in full. You’ll also pay unnecessary interest, unless you’re taking advantage of a temporary interest-free window.

That said, you shouldn’t worry about a balance showing up on your credit report. As long as your balances — both overall and on each individual card — stay below 30%, you’ll be able to build good credit.

Follow these hints from people with credit scores above 800:

  • Make every payment on time. The No. 1 habit of people with exceptional credit scores is that they never miss payments. One late payment will stay on your credit report for seven years.
  • Always keep your utilization below 10%. Most members of the 800 club pay off their balances in full each month, but many say they never let their balances climb above 10%.
  • Keep your oldest card open. As you build good credit, you typically qualify for better credit card rewards. But people with top-notch credit keep those old cards open and use them for a small monthly purchase. Credit scoring models favor customers who have long-term relationships with their cards.

Finally, don’t worry too much about small fluctuations in your credit score. Your score can vary from month to month based on the balance you have at the time your creditor reports to the bureaus. Fluctuations are completely normal. Focus on making on-time payments and keeping your balances low, and you’ll build a healthy credit score.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to or chat with her in The Penny Hoarder Community.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

How to Choose a Credit Card, the Right Way (Step by Step)

When choosing a credit card, you want one that suits your needs.

It can feel overwhelming at first, but it gets easier once you take a look at your credit profile to get a bird’s-eye view of your current financial situation.  Here, we’ll help you learn how to choose a credit card — we’ll highlight the key features to look out for, so you can find a credit card that feels like it was tailored to you.

1. See Where Your Credit Score Stands

The first step you’ll want to take is to get your credit score. Knowing your credit score gives you a solid idea of what cards you may qualify for and can even help you find pre-approved offers.

Your score doesn’t have to be perfect to land a good credit card. But you’ll at least need a score in the good range to qualify for the top credit cards with the most sought-after perks.

Don’t Stop at Checking Your Score

It’s a good idea for everyone to see what’s on their credit report. If your score isn’t in the excellent range, you’ll certainly need to make sure it’s accurate.

Check your credit history to see what accounts are impacting your score — and to make sure there are no errors hurting your credit profile. If there is a mistake, you can dispute it and potentially have your score corrected.

Even if there are no mistakes on your report, you may find opportunities to improve your credit score with a service like Credit Sesame.

Don’t Be Discouraged by a Poor Score

Don’t abandon the idea of a credit card if your score is fair or even poor. A secured credit card could serve as the bridge needed to get you from being denied to approved.

With secured cards, you pay for credit. You put up a security deposit, usually at least $200, and then a credit card issuer extends you the same amount in credit. This route lets you prove you’re worthy of more credit, and the lender has nothing to lose if you don’t pay your bill.

With enough on-time payments, you could get a credit limit and eventually be pre-approved for standard credit cards (more on secured credit cards in the next section).

2. Determine the Type of Card You Want

There are credit cards for every type of financial situation. While the number of credit cards out there may seem overwhelming and hard to count, they all broadly fall into five categories: credit-building, low-interest, balance-transfer, rewards and business.

Credit-Building Cards

These include the secured credit card mentioned above, as well as those intended for students and individuals who, for better or worse, haven’t established their credit yet.

The interest rates may be higher than average, and the credit lines may be modest, but cards intended to help build credit give account holders the opportunity to prove their creditworthiness.

Credit card issuers often extend credit line increases to account holders who keep their card usage low and make monthly payments consistently.

Low-Interest Cards

Typically requiring a credit score in the good-to-excellent range, low-interest cards are great for the long haul.

They offer highly competitive interest rates, potentially saving you hundreds or even thousands of dollars when compared to cards with higher interest rates.

Balance-Transfer Cards

These cards offer low-interest rates and may not charge you an annual fee, but only for an introductory period that’s usually 12 to 48 months long.

Use balance-transfer credit cards to pay off other credit card debt faster or to pay off a big purchase before the card’s normal balance-transfer rates and other fees kick in.

Rewards Cards

Who doesn’t love to rack up loyalty points or earn cash rewards? A rewards credit card can help you do just that.

You can earn miles to pay for airfare when you use airline rewards credit cards. You can get cash back on dining out with a dining card, or on gas with a gas card, and so on. You’ll need a score that’s at least in the fair-to-good range to qualify for this type of card.

3. Compare the Best Matches

Once you’ve figured out which type of credit card you want, and you know what you might qualify for, it’s time to compare your top choices head-to-head. And to do that, you’ll need to compare these key credit card features:

Annual percentage rate (APR)

This is the amount of interest you’ll pay on any balance on your card. The average APR in 2021 is around 16%, though rates could be as low as half of that figure or double (as high as 36%), depending on your credit profile.

Balance-Transfer Fees

This is the interest charge or flat fee you’ll have to pay if you want to transfer the balance from another credit card. Remember: Balance transfers to a low or no-interest credit card can help you pay down other credit cards quicker.

Late Fees

While you should always aim to pay your credit card bill on time, it’s still important to know how much dirt you’ll get shoveled with if you fall behind on payments. Beware, and don’t get buried in debt.


Would you rather receive 2% or 5% of every $100 you put on your credit card? 2 times the airline miles or 4 times? Be sure to compare each card’s rewards, especially if all else is equal or comparable.

Sign-Up Bonuses

It’s another possible tiebreaker. Welcome offers are perks you get just for signing up. It could be a statement credit worth hundreds or dollars, or enough miles to pay for a domestic flight. Read through your options.

Annual Fees

This maintenance fee is charged every 12 months on many credit cards, but not every credit card will have one. They can range from about $30 to well over $100. However, you’ll come across many card offers that don’t include an annual fee for a set amount of time or include no fee at all.

Cash-Advance Fees

In case you ever need to get your hands on some cash in a hurry, and you don’t have enough on hand, you’ll need to know how much your credit card will charge you for borrowing cash. These are usually comparable to ATM fees, but some can be much more expensive.


Not every credit card will report your on-time payment to the three major credit bureaus.

Foreign-Transaction Fees

Like to travel? Want peace of mind when you do? Be sure to review any potential card’s foreign transaction fee. It’s sort of like a cash-advance fee or ATM charge for making purchases in another country, and they can quickly pile up if you aren’t careful.

4. Apply for Your New Credit Card

After you’ve learned how to choose a credit card, reviewed your credit report and selected a few finalists, it’s time to apply for a credit card.

Use a reputable site like Credit Sesame to review options and apply, or go to the credit card on the company’s website. If you’re approved, you should get a response in a few minutes to a few hours.

If you aren’t approved, you should receive a written explanation in an email within a few business days or by mail, within a couple of weeks.

Did you get approved? Congratulations! Be sure to take care of your new account by keeping your usage no more than 30% of your credit limit — if you do that, you may qualify for a line increase down the road.

Keep in mind: applying for credit cards requires a hard inquiry into your credit report, which could cause your credit rating to take a mild or moderate temporary hit.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

In 2 Minutes, Credit Sesame Can Help Improve Your Chances of Getting a Home in This Market

If you’ve been trying to buy a house in this chaotic pandemic housing market, you know you could lose an opportunity from right under your feet in an instant.

The market is as competitive as we’ve ever seen it, and cash buyers are snatching up houses left and right. Bidding wars start within hours of a house being listed, and it’s not uncommon to see people offering $50,000 over asking price. Some things are just out of your control.

But there’s one thing that you do have control over — and that’s making sure you get approved for a mortgage, at a rate you can afford. Home sellers want to sell to someone who won’t give them any trouble during the closing process — and having a pre-approval for a mortgage loan is a great selling point. But without a good credit score, you might not stand a chance.

That means now is the time to improve your credit score and make sure there are no dings on your report holding you back. A free website called Credit Sesame can help you build your score, getting you one step closer to living in your dream home.

A Bad Credit Score Can Deny You a Pre-Approval — Or Cost You Thousands

If you’ve ever applied for a loan, you know that the lowest interest rate will save you the most amount of money. The same goes for a mortgage — and the only way to get the lowest interest rate is to make sure banks don’t think you’re a risky client (aka someone with a bad credit track record).

And with a poor credit score, you might not get a pre-approval at all — meaning just putting an offer on a home is out of the question.

A higher interest rate on your mortgage could cost you tens of thousands of dollars more over the life of your loan. In just 90 seconds, Credit Sesame will show you your free credit score, plus what’s impacting it. It’ll even tell you if there are any mistakes on your credit report — one in five people have one, according to the FTC. Then, they’ll give you customized advice to get your credit score back on track, which could make you more appealing to lenders — and home sellers.

Make sure your dreams of homeownership don’t get squashed by bad credit. Get your free credit score here (it only takes about 90 seconds) and see how much you could improve your score. You could be that much closer to getting the keys to your new home.

Kari Faber is a staff writer at The Penny Hoarder.

60% of Credit Sesame members see an increase in their credit score; 50% see at least a 10-point increase, and 20% see at least a 50-point increase after 180 days.

Credit Sesame does not guarantee any of these results, and some may even see a decrease in their credit score. Any score improvement is the result of many factors, including paying bills on time, keeping credit balances low, avoiding unnecessary inquiries, appropriate financial planning and developing better credit habits.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

The Housing Market’s Crazy. Before You Buy a Home, Do These 6 Things.

The housing market is turbocharged these days because of a shortage of homes for sale is leading to heavy competition between home buyers. That keeps pushing home prices higher and higher.

If you’re looking to buy a home, you better buckle up.

The housing market remains hot, even though things might be starting to slow down just a little bit, according to news sources like CNBC and The Wall Street Journal, among others. Low mortgage rates continue to spur robust demand, and the number of houses for sale is well below normal.

If you want to buy your own home, you’ll need to be smart and strategic about it. Consider these six tips:

1. Boost Your Credit Score

Looking to buy a home? Then there’s something you need to start thinking about right now: Your credit score. We know that sounds boring, but it’s actually super important, if you’re going to be signing up for a mortgage sometime in the future.

The higher your score is, the better deal you’ll likely get on your loan. So a good credit score can save you tens of thousands of dollars over the life of a 30-year mortgage.

If you’re looking to get your credit score back on track — or if you just want to bump it up some more — try using a free platform called Credit Sesame.

Within a couple minutes, you’ll be able to see your credit score, as well as a breakdown of what factors are contributing to your score and personalized tips on how to manage your credit better. With a couple of strategic decisions, you can improve your credit, saving you thousands.

2. Grow Your Money 16x Faster — Without Risking It

To buy a home, you’re going to need to start saving up money for a down payment.

A debit card called Aspiration lets you earn up to 5% cash back every time you swipe the card and up to 16 times the average interest on the money in your account. Plus, you’ll never pay a monthly account maintenance fee.

To see how much you could earn, enter your email address here, link your bank account and add at least $10 to your account. And don’t worry. Your money is FDIC insured and under a military-grade encryption. That’s nerd talk for “this is totally safe.”

3. Get Paid Every Time You Buy Toilet Paper

To save up that down payment, you’re going to want to find new ways to save money on everything else. For example, groceries account for a good chunk of your budget. Everybody’s got to eat. You may as well earn a little money back while your groceries are being bagged up.

A free app called Fetch Rewards will reward you with gift cards just for buying toilet paper and more than 250 other items at the grocery store.

Here’s how it works: After you’ve downloaded the app, just take a picture of your receipt showing you purchased an item from one of the brands listed in Fetch. For your efforts, you’ll earn gift cards to places like Amazon or Walmart.

You can download the free Fetch Rewards app here to start getting free gift cards. Over a million people already have, so they must be onto something.

4. Stop Overpaying for Stuff Online

Here’s another way to save money. Wouldn’t it be nice if you got an alert any time you’re shopping on Amazon or and you’re about to get ripped off?

That’s exactly what this free service does.

Just add it to your browser for free, and before you check out, it’ll check other websites, including Walmart, eBay and others to see if your item is available for cheaper. Plus, you can get coupon codes, set up price-drop alerts and even see the item’s price history.

Let’s say you’re shopping for a new pair of shoes, and you assume you’ve found the best price. Here’s when you’ll get a pop up letting you know if that exact pair of shoes is available elsewhere for cheaper. If there are any available coupon codes, they’ll also automatically be applied to your order.

In the last year, this has saved people $160 million. You can get started in just a few clicks to see if you’re overpaying online.

5. Knock $540/Year From Your Car Insurance in Minutes

When it comes to saving up for a down payment, cutting your other bills can make a huge difference. So when’s the last time you checked car insurance prices?

You should shop your options every six months or so — it could save you some serious money. Let’s be real, though. It’s probably not the first thing you think about when you wake up. But it doesn’t have to be.

A website called makes it super easy to compare car insurance prices. All you have to do is enter your ZIP code and your age, and it’ll show you your options.

Using, people have saved an average of $540 a year. That could be money back in your pocket just for taking a few minutes to look at your options.

6. Stop Paying Your Credit Card Company

Getting a mortgage for a house is a form of debt. But credit card debt is the most expensive kind of debt there is, and your credit card company is just getting rich by ripping you off with high interest rates. However, a website called AmOne can help you fight back.

If you owe your credit card companies $50,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.

The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.

It takes two minutes to see if you qualify for up to $50,000 online. You do need to give AmOne a real phone number in order to qualify, but don’t worry — they won’t spam you with phone calls.

Buying a home is a major step in life. If you follow these strategies, you’ll get closer to your goal.

Mike Brassfield ( is a senior writer at The Penny Hoarder. He’s a homeowner.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

With Credit Sesame, He Raised His Credit Score Nearly 170 Points

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Lorenzo Frias has specific financial goals in life, including buying a better car and someday buying his own home.

But all of that came to a screeching halt when he found out his credit wasn’t good. In fact, his credit was so poor that he couldn’t even get a credit card — let alone a car loan or a mortgage, which are harder to get than a credit card. It turned out his goals were way out of reach.

What was his credit score? “It was 523, to be exact,” he says. “To be honest, it was pretty bad.”

Late payments to an American Express card had pretty much ruined his credit. Your credit score is like your financial fingerprint, and a score below 600 makes you ineligible for most loans or credit cards.

Frias puts it bluntly.

“It’s embarrassing,” he says. “I realized there were definitely some things I needed to address.”

That’s when he found Credit Sesame, a free website that helps people manage their credit better.

His goal was to raise his credit score to 700 by the time he turned 24, and he’s nearly there. More than a year after joining Credit Sesame, he’s about to turn 24, and his credit score is 691 — a huge improvement.*

How was he able to boost his score by nearly 170 points?1 By following the website’s tips and using its free tools. Now he’s about to lease a better apartment, and he’s hatching plans to buy that car and house he’s dreaming of.

How Your Credit Affects Your Life — and How You Can Raise Your Score

Your credit score isn’t just some pointless three-digit number. It influences major parts of your life, like where you live and what you drive. The higher your score, the better deal you’ll get on big things like a mortgage, a car loan, a credit card, a car rental or an apartment lease.

Like Frias, 60% of Credit Sesame members see an increase in their credit score; 50% see at least a 10-point increase, and 20% see at least a 50-point increase after 180 days.2

With his shiny new credit score, Frias just signed a lease on an apartment in the San Francisco Bay Area. He’s moving there from Los Angeles with his girlfriend and their two dogs, so he can live closer to work. Like many of us, he’s been working remotely, but that likely won’t last forever.

Getting approved for the lease was no problem. “I had flying colors across the board,” Frias said. “I was really happy to see that.”

He’s been driving what he calls “a little bucket” — an old Honda Civic that he’s nursing along, even though it needs a new ignition and is likely on its last legs. Now he’s in a position to change that.

He’s been able to build up his savings and says he’s waiting to see what happens to car prices, which are fluctuating madly.

As for buying a house, the Federal Housing Administration has pre-approved him for a $760,000 mortgage. “So there’s that to look forward to — I can buy a home.”

What’s the Secret?

So how did Frias raise his credit score by 168 points?1 What’s the secret?

When you sign up with Credit Sesame, it immediately shows you what your credit score is. It shows you why you have the score you do, and it gives you personalized tips to steer you in the right direction.

If your credit is bad, it’ll show you steps you can take to help fix it. If it’s good, it’ll show you ways you could make it even better. And if it’s excellent, well, it’ll show you how to keep it that way.

It’ll even show you if there’s a mistake on your credit report that’s holding you back. (One in five reports has a mistake.)

Following Credit Sesame’s advice, Frias took the following steps:

1. Credit-Builder Loan

He took out a $1,500 credit-builder loan that was recommended to him. It’s a loan that’s specifically designed to help you build your credit. You borrow money, but the bank holds onto that money until you’ve paid off the loan.

Each month, you make small payments toward the loan. Those payments get reported to the three credit bureaus. They see that you’re making payments, and your credit starts to reflect that.

Once you’ve paid off your loan, you get all your payments back, minus a little interest. So you’ve started a little savings stash.

2. Secured Credit Card

Frias got a secured credit card that was recommended to him. This is useful for people who can’t qualify for traditional credit cards. It’s similar to a debit card. Once you put down a deposit, you can use that amount in credit. But unlike a debit card, the secured credit card lender reports your payments to credit bureaus so you can establish a credit history.

3. Other Credit Cards

Once his credit started improving, Frias applied for traditional credit cards. It actually can help your credit score to have credit that you’re not fully using.

The percentage of your overall credit limit that you’re using is one of the factors that your credit score is based on, along with your payment history, length of credit history and diversity of credit.

Frias and his partner share a number of different credit cards that they use for different purposes.

“I’m always paying off my credit card bills every month,” he said. “I don’t leave an unpaid balance.”

4. Disputing Negative Items

Once you review your credit report, you can dispute certain negative marks that are dragging you down. You send dispute letters to the three major credit bureaus: Equifax, Experian and Transunion.

Frias had a company named Lexington Law doing this for him, but he quickly decided that was too expensive and started doing it himself.

“Until then, I didn’t know I could message the credit bureaus myself,” he said. “Once you realize the power’s in your hands, you can go ahead and do the same things they’re doing.”

‘We’re Doing So Much Better’

Now that Frias has a better credit score, he and his girlfriend are packing to move to the Bay Area.

“We’ve got a U-Haul ordered for the end of the month,” he said. “I recommended Credit Sesame to my girlfriend, and it benefited her as well. Financially, we’re doing so much better.”

Mike Brassfield ( is a senior writer at The Penny Hoarder. He’s a Credit Sesame member and finally got his credit score above 700, woo hoo!1

1 60% of Credit Sesame members see an increase in their credit score; 50% see at least a 10-point increase, and 20% see at least a 50-point increase after 180 days.

2Credit Sesame does not guarantee any of these results, and some may even see a decrease in their credit score. Any score improvement is the result of many factors, including paying bills on time, keeping credit balances low, avoiding unnecessary inquiries, appropriate financial planning and developing better credit habits.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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