Does Having a High Balance on a Credit Card Hurt?

Account Balance

The Fair Isaac Company is the creator of the FICO score, also known as the credit score. According to Fair Isaac's formula, 30 percent of your credit score is based on the amount that you owe. All else being equal, the more that you owe on your credit cards, the lower your score will generally be. Since credit card companies typically only report your balance once per month to the credit reporting agencies, having a temporarily high balance on your cards may not have any effect at all on your scores. However, if you keep a high balance for one month or longer, you can usually expect a drop in your scores.

Another important component of your overall credit score is your credit utilization. Credit utilization refers to the percentage of your total available credit line that you have used at any given time. If you run up a high balance on your credit cards, your utilization rate will also rise, dropping your score. The Fair Isaac Company factors in your credit utilization in the same 30 percent category as your account balance. If you approach a 100 percent utilization on your credit cards, your FICO score will typically drop around 25 to 45 points, according to Bankrate.

In addition to hurting your credit score, having a high balance on your credit cards can cost you more money. If you don't pay off your credit card balance by the monthly due date, you will have to pay interest on the amount of your outstanding balance. If you carry a high balance, that can amount to a significant amount of money, as many credit cards charge interest of over 10 percent annually.

If you don't anticipate a need for any future credit, you can avoid most of the damage that a high credit card balance can cause. If you can shop around and find a credit card offering a zero percent interest rate, you will not have to worry about paying interest on your high credit card balance. The attendant drop in your credit score may have no bearing on you if you don't need any future credit.