How Having a Zero Balance Affects Your Credit Score

Woman paying credit card balance on computer
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The amount of debt you’re carrying is 30 percent of your credit score—the second biggest factor after payment history—so your credit card balance obviously impacts your credit score. Having high balances can hurt your credit score because it raises your credit utilization—the ratio of your credit card balance to your credit limit.

Some people, however, believe that carrying a balance is necessary to build a good credit score. Others have concerns that a zero balance can harm their credit scores. Fortunately, it’s not true—a zero balance won’t bring down your credit score, unless however, you have a zero balance because you haven’t been using your credit card. In that case, the credit card issuer may stop sending credit report updates for that account and may even close the credit card, both of which can affect your credit score.

Zero Balance and Your Credit Report

Having a zero balance on your credit card, e.g. because you pay your balance in full each month, doesn’t mean that the zero balance will show up on your credit report—or that the zero balance will be used to calculate your credit score. Here’s why: your credit card details are reported at various times throughout the calendar month (usually on the account statement closing date). Because of this, your credit card balance might not be $0 on the day your credit card issuer reports to the credit bureaus, depending on whether you've used your credit card after you paid the full balance.

For example, if you make a $100 purchase on the 5th of the month and pay it in full on the 17th of the month, but your credit report was updated on the 12th of the month, your credit report won't show a zero balance. Instead, it will reflect the balance on the 12th.

Unless your balance is always zero, your credit report will probably show balance higher than what you're currently carrying. 

Fortunately, carrying a balance won't hurt your credit score as long as the balance you do have isn't too high (above 30 percent of the credit limit). Higher credit card balances are considered riskier as creditors and lenders weigh whether you can handle an additional debt obligation.

Inactive Credit Cards

If you have a $0 balance for several months because you're not using your credit cards at all, your credit score could take a hit. When a credit card is inactive for several months or longer, your credit card issuer may stop sending account updates to the credit bureaus. Without a recent history of your borrowing showing on your credit report, potential creditors and lenders will have a harder time gauging whether you're a responsible borrower.

Making small periodic purchases and paying in full can keep your credit card balance at $0 and keep your account open and active for credit reporting.

Having a $0 credit card balance isn't essential even for having a perfect credit score. According to FICO, consumers with a perfect FICO score of 850 have an average credit card balance of approximately $13,000 and a credit utilization of 4.1%.

Multiple Credit Cards

The average consumers carries four credit cards with an average balance of $6,194. If you're someone with multiple credit cards, each with a balance, paying off just one of those credit cards to zero can help boost your credit score.

The credit scoring calculation considers both your individual credit utilization on each of your credit cards and your overall credit utilization. Paying off one full balance brings down the credit utilization across all your credit cards, showing that you're not using the full amount of credit available to you.

Getting the Balance You Want to Report

If you’re applying for a major loan soon and want to reduce your balances to improve your chances of being approved, make a large lump sum payment to your credit card and don’t make any additional purchases for a few weeks. That way, you can be sure a low (or zero) balance shows up on your credit report and is reflected in your credit score.

Article Sources

  1. myFICO. "Amounts Owed." Accessed April 22, 2020.

  2. Consumer Financial Protection Bureau. "Credit Score Myths That Might be Holding you Back From Improving Your Credit." Accessed April 22, 2020.

  3. Equifax. "Inactive Credit Card: Use It or Lose It?" Accessed April 22, 2020.

  4. Experian. "How Often Is a Credit Report Updated?" Accessed April 22, 2020.

  5. FICO. "What Do High Achievers Have in Common?" Accessed April 22, 2020.

  6. Experian. "A Look at U.S. Consumer Credit Card Debt." Accessed April 22, 2020.