The total amount of money a cardholder owes to the card issuer is called the credit card balance. It changes according to how you use the card. When you use it to finance a purchase, the balance goes up. It reduces when you make a payment. Any balance that remains after a billing cycle gets carried over to the following month’s bill. However, it’s not a good idea to carry the credit card balance from month to month.
Why Should You Not Carry a Credit Card Balance to the Next Month?
It affects the credit score.
A credit card balance is a significant factor in calculating your credit score. Future creditors check your balance to determine the cost and risk of granting you additional credit or benefits like more credit card reward points.
When you carry a balance on a card, it factors into the credit utilization ratio and increases the same. Sometimes, that is unavoidable. However, if the ratio is consistently high, lenders and creditors get the impression that you cannot handle credit responsibly. So, they may assume that you’re at an increased risk of defaulting on future credit card payments or loans.
This may reduce your chances of getting approval for new loans or the best credit cards.
This leads to late payments.
Mounting balances means you cannot pay them off on time every month. This leads to late payments, which come with charges. As the authorities keep adding up, the total dues also increase. This can again bring down your credit score. After all, payment history makes up 35% of the credit score calculation.
It makes you unable to finance emergencies.
When an emergency arises suddenly, a high balance lowers your ability to finance it using your credit card. Even if you can, you may accumulate a massive debt load and incur more late fees.
Tips to Improve the Situation
Pay off in time
The best idea is to keep paying off the balance little by little as you use your card. Aim to clear the minimum amount due and the total bill before the payment due date. That way, the dues won’t pile up, and you won’t pay late or incur late charges. This can revive your credit score and help you get cards with great benefits like credit card reward points with no expiry or capping!
Increase your credit limit.
Once your credit limit increases, your credit utilization ratio will go down. Then the balance carried over to the next month may not account for too high a credit utilization ratio. So, consider requesting the issuer to up the credit limit.
Opt for a balance transfer.
You can also request the card issuer to transfer the high balance on one card to another card that comes with a lower interest rate.
To conclude, always make regular payments on time to avoid carrying the balance to the next month. This can help you get the best credit cards when you apply for them in the future.
