For many credit card users, a $0 balance seems like an unachievable goal. A zero balance card is a credit card that has no outstanding balance, meaning you have no debt to pay on it. You can maintain a zero balance by paying off a credit card in full each month or by not using it at all. Using your credit cards for multiple large purchases or for groceries, gasoline, and other daily expenses makes this difficult. Here are three reasons it is advantageous to keep a zero balance on your credit cards.
1. May Help Your Credit Utilization Rate
Even if you have other credit cards with balances, having a zero balance credit card reduces your overall credit utilization ratio. The credit utilization rate is a percentage of credit you’ve used compared to how much you have available overall. If you don’t use any credit, this value will be zero. It’s not that having a credit card balance is always harmful; however, a lower balance or zero utilization will reflect a higher degree of financial responsibility.
It’s best not to let your card balances go too high (balances above 30% of the credit limit have more of an impact on your credit score). But if you don’t use your credit cards at all for a long period of time, this can also hurt your credit. A credit card issuer will stop sending updates to the credit bureaus, which may reflect on your credit report. It’s then harder for potential creditors and lenders to determine your responsibility as a borrower. Periodic purchases can therefore be helpful if you keep your credit card balance low or at $0.
2. Build Credit History While Paying Off Debt
Using your credit card from time to time helps build your credit history. It helps manage your finances, especially if you work card payments into your budget. By keeping a credit card at a zero balance, you can work to build your credit history and pay off your debt.
It is good to keep credit card balances at zero, but using credit at the right times can help. When you do use a card, paying it off in time shows you are responsible. Little or no debt can give you a clean credit history and provide opportunities to invest in a car or home and get a job at a company that strongly considers your credit. At the very least, it can reduce the stress of worrying about paying off high amounts of debt.
3. Access to Emergency Funds
A zero balance card can be your safety net in an emergency or if you lose your job. Unemployment has hit record-high levels during the COVID-19 pandemic. Access to emergency funds is therefore important. You shouldn’t consider credit cards as a safety net for long, but if this is necessary, then having a zero balance means you can use them without prior debt being a burden. It’s therefore an incentive to resist making large purchases that aren’t really necessary, and certainly to not spend more than you can pay back. The general rule of thumb is to not charge an amount higher than the cash you can spend.
Contact American Credit
We are a credit restoration, repair, and consultation company based in Los Angeles. Our team can help analyze your situation to determine the right course of action. A pre-litigation credit repair process is used rather than dispute resolution. Our credit repair service uses the same process as attorneys in the consumer credit law field to achieve a higher success rate. For a free Credit Repair Consultation, contact us today!