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One of the biggest credit card misconceptions is that carrying a balance month to month will give your credit score a boost.
To that point, 46% of Americans incorrectly believe that leaving a small balance on their card is better for their credit score than paying off the balance each month, a recent NerdWallet study found.
That’s an expensive mistake. In fact, any amount of revolving debt costs you in interest charges. Those typically are not calculated based on how much debt you roll over to the next statement period, but rather on your daily average balance. Carrying a balance could also ding your credit score.
“Financially, you are benefited by trying to pay off as much as you can,” said Paul Siegfried, a senior vice president and credit card business leader at TransUnion.
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Credit experts generally advise borrowers to keep revolving debt below 30% of their available credit to limit the effect that high balances can have on your credit score.
Still, nearly half of credit card holders carry credit card debt from month to month, according to a Bankrate report, just as the interest charges on those balances are getting more expensive.
Credit card rates are now over 18% and will likely hit 20% by the beginning of next year as the Federal Reserve continues to raise interest rates to combat inflation.
With the rate hikes so far, those credit card users will wind up paying around $20.9 billion more in 2022 than they would have otherwise, according to a separate analysis by WalletHub.