The Credit Card is one of the most used financial instruments in recent times. Users find themselves trying a range of ways to ensure that they get the best deal possible out of the card, even if they have some of the best Credit Cards in India.
But in terms of answering the question – paying off the balance in a Credit Card or keeping it for benefits? Let us analyse this in depth.
There are many ways to approach this question if you are planning to experiment over it. However, there is no doubt that the best way to improve the credit score of the person is to pay off the balance in the card in full every month, on time so that no penalty is imposed on the other. Let us still analyse the results of various scenarios that the user can enact.
Why leave a balance?
Getting a Credit Card is easy, especially in the case of SBI Credit Cards. However, how do you convince the bank and yourself that you are using it? Leaving a small balance in the card at all times would be the best way for that.
However, there is a downside to this tactic too. A person checking your credit score can interpret it as evidence that you do not have money since you are unable to pay off the debts on the card. It is also to be noted that there is a huge difference between a balance that is Rs. 500 and a balance that is in the thousands – either way, still, you will have to continue paying the interest levied by the bank. Therefore, you mind end up shelling out a larger amount over the months.
This boils down to the way and the frequency in which you use the card. If you are a person who uses the Credit Card always, it would be wiser to not leave any balance on it. The frequency of usage would be enough for you to get a good score, and you need not worry about not having a balance. However, if you are a person who uses the card only sporadically, it would be better to leave a small balance even in the best Credit Cards in India. A zero balance could be construed as inactivity, and the subsequent cancellation of the card could result in the credit score of the user dropping.
Why Carry Over Debt is NOT Good?
One of the most trusted and best ways to raise the credit score you currently have is to pay off the balance incurred on it every month judiciously. The important thing to note is that paying it off in time means that you incur less money, and adds up to substantial savings over the long term. An important factor in understanding the credit scoring is the payment history of the person, and there is no point if you have an erratic past I paying off your Credit Card balance.
Even here, the trick is to strike a fine balance between credit utilisation and credit score – if you do not use your Credit Card much, letting a small, manageable balance stay in the card would be a good idea. The best utilisation rate for credit is considered to be 30%, which means that you should never carry a balance of 30% or more than your credit limit in one single card.
Dealing with Balances
If you eventually choose that you will leave a small balance in your card because you think that that would help in regards to your credit score. However, you need to take care to ensure that the limit is never over 30%. If that is the case, a good thing to do would be to pay off a part of the balance before that appears in the next Credit Card bill, so that your credit score remains unaffected. Therefore, ensure that the small amounts you leave in the card do not exceed the 30% limit, by paying it off part by part before the Credit Card bill cycle kicks in.
If you are this curious about understanding the implications of leaving a small balance on your card, the best thing to do would be to leave a balance and test it to see what happens. The first step to do in that case is to start at zero – you will need to pay off your full balance initially. Then, get your credit score to get a benchmark of what it is, for the time being.
The next month, you should start by leaving a small balance – a sum of Rs. 500 would do. Make sure that you do not do anything else in this card, like paying other balances late or opening new credit accounts. With such a system in place, you would be able to understand if the credit score is affected by the small balance you have, and whether it goes up or down.
Downsides to Small Balances
Be it whatever Credit Card, even if it is one of the Best Credit Cards in India, the lenders would charge a small interest on the balance amount. This is usually a small sum, but do not forget that even the smallest interest rates could eventually snowball into a large amount if they are neglected. This happens more often than you think, especially if you have a new Credit Card. Since you have forgotten about the account already, you might not notice it when it becomes delinquent – and this snowballing which led to the non-payment of the balance could become a permanent bad mark on your credit score.
Getting a Credit Card is easy, and there are many amazing benefits to getting them too – however, they are financial instruments which need to be used judicially, or else, they could result in a lot of problems in your credit score.