Does Having a Zero Balance Credit Card Impact Your Credit Score?

Everything you do with regards to your personal finances can have an impact to your credit. As time move forwards it seems like more and more things are beginning to get reported to the credit bureaus. Rent payments are being normalized as being reported to bureaus as are utility and other monthly bills. This gives credit reporting agencies more insight into a borrower’s potential credit worthiness. Due to this, nearly every financial move we make has an impact on your credit.

Five Factors of Credit

There are five factors which weigh on a consumer’s credit score. 30% of the score is determined by the amount owed or utilization rate (utilization is sometimes referred to as the ratio of debt to credit availability). 35% of your credit score is determined by your payment history. While 10% is determined by the mix of credit you have—otherwise known as your credit diversity (this means auto loans, mortgages, personal loans, credit cards, etc.). The more diverse your credit portfolio the better. 15% of your score is determined by the length of your credit history. Lastly, 10% is determined by new credit.

Can Having a Zero Balance Score Negatively Impact Your Credit Score?

Having an active credit card account with a zero balance is always great for your credit. In this case, the credit card account has a 0% utilization rate and is providing an outsized boost to your credit score. There is not scenario in which having retaining a zero balance will ever hurt your score, this is a credit card myth you should avoid. However, what can have a negative impact on your credit score is if you have $0 balance credit cards that eventually go inactive.

Does When You Pay Off Your Credit Card Balance Matter?

This depends on when the card is actually reported to TransUnion, Equifax, & Experian and the balance at the time it is reported. If you are current on the account and the reported balance is zero, you are maximizing the total benefit to your credit worthiness. In other words, it can’t get better than have a $0 balance. Otherwise, the balance will just be reported as “paid as agreed and $0 balance”.

Do Periodic Payments Help?

Yes, it is a great idea to make small periodic purchases and also make small periodic payments. This way your credit cards will always remain active and no matter when your balance is reported to the bureaus you will be showing a very low utilization rate. Remember, if you credit card goes inactive this could negatively impact your credit score as you’ll be losing a line of credit.

Credit Advice

Most often the best way to improve your credit worthiness is to maintain an extremely low utilization rate. This factor most often gets overlooked by consumers.If you have good payment history and a diverse mix of credit, this is by far the best way to boost your score. Since there’s only five factors that go in the so called “credit sauce”, you know the recipe and all the ingredients. With that knowledge you should be able to game the credit system and figure out a plan of action to have amazing credit. It might take some time but it’s highly achievable.