While your credit card offers you plenty of credit to use at your whims, you shouldn’t try to use it all. You should actually try your best to keep your balance as low as you can and steer clear of your pre-set credit limit.
Why is that? Here are three big benefits of keeping your credit card’s outstanding balance low.
1. Less Debt
The first reason to keep your credit card’s balance low is to avoid a high debt load. The more that you borrow, the more that you’ll have to pay back with interest.
Low balances are easy to pay down. If the balance is low enough, you could pay off everything in your monthly bill.
On the other hand, a high balance will take much longer to tackle, and while you’re coming up with the funds to pay down that balance, it will grow with compounding interest. As time goes on, your debt load will get bigger and more challenging to manage on your own, and you’ll run the risk of maxing out your card.
When you don’t have enough personal savings to cover an urgent expense, you can turn to your credit card for help. After making the transaction, you can whittle down the card’s balance when you have the funds available.
You can’t depend on your credit card in emergency situations when it sports a high balance. An urgent expense could push your balance too close to the set limit—or worse, make you max out your card. Keeping your card’s balance low and far from the limit will give you plenty of wiggle room for urgent, unplanned expenses.
If you don’t feel comfortable using a credit card in an emergency, you could try another credit option like an online emergency loan. With an approved loan, you can use borrowed funds to cover an urgent expense quickly and then focus on repayments later on. So, if you’re in the middle of an emergency right now, you can apply today and see whether you get approved. It just might help you get out a stressful situation.
3. Credit Score
Your credit score shows current and potential lenders how much of a responsible borrower you are. Having a high score typically means that you are financially responsible and reliable, while a lower score means that you’re likely to default on loans. A higher UK credit score matters when getting a house and leads to better financial opportunities like lower interest rates and higher credit limits.
One of the measurements that goes into your credit score is credit utilization — this is how much of your available credit you have borrowed. A lower credit utilization rate positively affects your credit score because it shows that you are managing your credit payments regularly instead of letting them add up over time. So, keeping your credit card’s balance low could result in a better credit score and all the advantages that come with it.
These three benefits of keeping your credit card balance low are sure to come in handy.