Zero-balance credit cards can seem like the ideal situation—you’re keeping your spending in check, and it feels great to see that $0 balance each month. But does a 0-balance credit card hurt your credit score? This is a common question for those aiming to maximize their creditworthiness.
In this article, we'll explore the relationship between zero-balance credit cards and your credit score. You'll learn how credit utilization plays a crucial role in determining your score, and why a zero balance might not be as beneficial as it seems. We also ask finance experts for some practical tips to manage your credit without hurting your score.
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What is a zero balance credit card?
A zero-balance credit card is not a specific type of credit card—it simply refers to a card on which you have on balance at the end of the billing cycle. You owe no money. This can happen if you haven’t used the card that month, or if you've paid off your balance in full before your billing statement was generated.
“It's like having an empty gas tank in your car—it’s not necessarily bad, but it might mean you're not using it,” says Steven Kibbel, certified financial planner and chief editorial advisor at Gold IRA Companies.
In other words, while having a zero balance isn’t inherently harmful, it could have some implications. If you consistently show no activity on your card, it may lower your credit score because creditors prefer to see responsible credit use.
Credit utilization: The key to understanding your credit score
Your credit score is made up of several factors, and one of the most important is your credit utilization ratio. “Credit utilization is how much money you borrow in relation to your spending limit,” says finance advisor Melanie Musson.
Credit utilization is calculated as a percentage, and it heavily influences your FICO score, which is the most widely used credit scoring model. In fact, your utilization rate accounts for 30% of your score.
The ratio measures how much of your total available credit you’re using at any given time. Most experts recommend keeping this ratio under 30%. “If you’re borrowing up to your limit or close to it, your credit score will be lower,” Musson says. “If you borrow less than 30% of what you can borrow, your credit score will increase.”
For example, if you have a total credit limit of $10,000 across all your credit cards, it’s ideal to use less than $3,000 of that at any point.
Does keeping a zero balance affect your credit score?
When you maintain a zero balance on a credit card, you’re effectively showing no credit utilization for that account.
“Zero-balance credit cards do not report any balance to credit bureaus, so they do not contribute to your credit utilization ratio,” says David Brillant, an estate planning attorney at Brillant Law Firm.
Credit scoring models like FICO prefer to see responsible credit usage rather than no usage at all. When you use your credit cards and pay off the balance, you demonstrate that you can handle credit responsibly.
If you consistently have a credit card at zero balance, it might look like you’re not using credit at all. “While one zero-balance card likely won’t hurt your score significantly, multiple cards with no reported balance can negatively impact your score,” Brillant says.
Another reason not to let your credit card sit unused for too long is that the company might cancel it. “If that happens, you’ll lose credit history length, which is also a factor in your credit score,” Musson says.
If you use your credit card every other month or every three months and you pay it off by the due date, you can maintain a zero balance without risk of the credit card company canceling your account.
Why zero balance might not be ideal:
While having zero balance on credit cards might seem like a brilliant financial strategy, it could actually lower your credit score because you’re not showing any utilization at all.
- No credit activity: Credit scores benefit from regular activity that shows how you manage your debt. A card with no usage isn't contributing to this.
- Missed opportunities for boosting your score: Regular, small charges that are paid off quickly can help improve your score by keeping your utilization rate active but low.
- Potential for account closure: Credit card companies sometimes close accounts that are inactive for long periods. This could hurt your credit score by reducing your overall available credit, thus increasing your utilization rate on any remaining cards.
Do I need to carry a balance?
Nobody needs to carry a credit card balance month-to-month to improve or maintain their credit score. Making charges and paying them off in full before the statement closes is enough.
Some people might wonder, “should I leave a small balance on my credit card instead?” Nope—you don’t need to do that either. Making small, regular charges on your card and paying them off each month keeps your card active and shows that you’re responsibly managing credit. This strategy also avoids interest charges while maintaining a healthy utilization rate.
Tips to avoid a zero balance
Here’s how to keep your credit active and prevent zero-balance credit cards from affecting your score—without carrying debt.
1. Make small, regular purchases
Use your card for everyday expenses like groceries or gas and pay off the balance each month. This keeps your utilization active without accruing debt. “This simple step keeps the cards active, builds your credit history, and has minimal impact on your budget,” Brillant says.
2. Set up automatic payments
One of the easiest ways to keep your credit card active without overusing it is to set up automatic payments. “For example, put a recurring expense like a streaming service on the card and set up autopay,” Brillant says.
By automating a small, recurring charge each month, you ensure that your card is being used consistently without the risk of overspending. This method also saves you from forgetting to make a purchase, which could lead to the card being inactive for long periods. Additionally, setting up automatic payments helps you avoid late payments, which can harm your credit score.
3. Monitor your credit utilization rate
Aim to keep your utilization below 30%, but not at zero. It’s all about balance—show you can use credit without relying on it too heavily.
“Responsible use of credit over time is the best strategy for building a good score,” Brillant says. “Check your credit report and score annually to catch any errors, and monitor accounts regularly for fraud.”
4. Pay off your balance in full each month
Avoid interest fees by paying your full balance before your statement is generated. This will show credit activity while keeping you free from debt.
Does paying off your credit card in full lower your score? No, this will not lower your score by itself. In fact, it’s one of the best ways to maintain a healthy credit history. What affects your score is whether or not your credit utilization shows up as zero during the statement cycle.
If you're using your card but paying it off before the statement closes, this could make it appear like you’re not using any credit, which could lower your score slightly.
FAQs
Is it bad to have a lot of credit cards with zero balance?
Having several credit cards with zero balances isn’t necessarily bad, but if they all show no usage over time, it might affect your credit score. Creditors prefer to see responsible credit activity, so using your cards for small purchases and paying them off can help keep your credit active and healthy.
Should I carry a balance to improve my credit score?
Carrying a balance month-to-month is not necessary to improve your credit score. It’s better to make small charges and pay them off in full.
How much of my available credit should I use to maintain a good score?
A general rule of thumb is to use no more than 30% of your available credit. However, keeping it even lower, like under 10%, can benefit your score even more.
Does paying off my card before the statement date impact my score?
Yes, paying off your card before the statement date can result in a zero balance being reported, which could reduce your utilization rate and potentially lower your score. To avoid this, try to leave a small balance that will be reported but paid off before it accrues interest.
Does credit utilization matter if you pay in full? Yes, it still matters even if you pay your balance in full. Credit utilization is calculated based on the balance that appears on your statement, not what you pay afterward.
Can I request my credit card company to report usage differently?
Credit card companies typically report your balance at the end of each billing cycle. You can’t control when they report, but you can time your payments so that some usage is reflected on your report.
Is 0% credit card debt good?
Having 0% credit card debt is excellent for your financial health, as it means you’re not carrying any outstanding balances or accruing interest. Does having no debt hurt your credit score? Not directly. However, your credit score is influenced by your credit activity, so if you're not using credit at all (e.g., no credit card usage or loan payments), your score could stagnate or decline over time.
One strategy is to use your credit card for small purchases and pay them off immediately in order to show activity and keep your credit utilization from being 0%.
Does closing a credit card with zero balance affect your credit score?
Closing a credit card with a zero balance can affect your credit score. When you close a card, your total available credit decreases, which can raise your credit utilization ratio if you have balances on other cards. This higher utilization can lower your score.
Additionally, closing a long-standing credit card can reduce the average age of your credit accounts, another factor that impacts your score. If you don't need to close the card, it may be better to keep it open, especially if it has no annual fees.