Finance Credit Cards

Why Are Low Credit Card Balances Good For Credit?

Introduction

So many desires and too little of resources. There are so many things you want but just can’t have them all because they are not affordable and put a strain on your financial resources. But in today’s world, bank and credit card companies ensure that none of the consumers are deprived of what they deserve and hence there is a wide range of credit card facilities available to users. However, this does not mean that they can utilize the entire amount at their disposal at all times. There are costs associated with them and at the end of the day everyone wants to have a low credit card balance. Is it okay to keep consumption high and get the economy running or will you eventually be filing for bankruptcy if you do not maintain low credit card balances? Let’s have a look at why lower credit card balances are usually preferred.

History

Once you have availed a credit card facility, you should be vigilant about how you can minimize your costs. A loan of $5000 can end up costing you a fortune that you may not be able to pay in this life. Credit card balances come at play when looking at the credit utilization rate of consumers. Credit utilization is basically the percentage of your balance of your credit limit. It shows how efficiently you are using and maintaining your credit balances. High credit utilization would mean that you are making use of most of the credit without actually restoring some of the amount. Whereas low credit card utilization rates imply that you are conservative and are not using much of your credit funds. These utilization rates are used to gauge the debt capacity of the customers by the banks and companies who then allocate credit scorings to their clients. There are certain factors that affect the credit scores of an individual. These is your payment history of the credit card bills, the amount of debt that you hold as well as the amount of time that you have been holding the credit card for. Also, the utilization rates take into consideration the total of your credit limits and the total of your balances and not just balances from one particular financial institution. So, one high balance may offset the other.

Features

If there is a low credit card balance, you will be able to enjoy lower rates of interest and will be able to actually benefit from this additional source of income rather than making it a burden some on you in the later years. Additionally, if you pay back your entire amount towards the end of the month, it does not necessarily ensure that your balance statement will show a low credit balance. The fact that you were once a high balance customer might eventually be depicted in the statement. Moreover, if you maintain low credit balances, you are likely to be offered an increase in your credit limits by your financial institution and they might even give you waivers and discounts on your bills regarding you as ‘good customers’.

Tips and comments

Therefore, if you wish to have easy, yet affordable sources of income, make sure that you maintain low credit card balances so that you can qualify as good customers and have a chance of further perks and benefits from your banks and credit card companies.

By Sidra Rana, published at 02/15/2012
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