There's a prevalent myth in Canada that just won't die: "Carrying a balance on your credit card helps your credit score." Let's set the record straight.
Carrying a balance does not improve your score. It improves your financial provider’s bottom line, because they charge interest on outstanding debt.
Here’s what really happens when you carry a balance and how to use your card smarter.
First thing first: What does "carrying a balance" mean?
If you don’t pay your credit card in full by the due date, the remaining amount becomes your “balance.” That amount rolls over into the next month and the credit card company collects interest on that—sometimes at rates north of 20%.
So, when anyone says they "carry a balance," what they really mean is: "I'm paying my bank extra money."
Does carrying a balance help your credit score?
Short answer: No.
Longer answer: Still no.
Your credit score is calculated by a few main factors:
- Payment history: Do you habitually pay on time?
- Credit utilization: How much of your credit and loans you’re accessing.
- Credit history: How long you’ve had open credit accounts. Have you been able to pay off loans?
- Types of credit: This is your mix of cards, loans, etc.
- New credit inquiries: Does any potential new debt mean you might not be able to pay your current debt?
Notice what's missing from that list. Carrying a balance. Credit bureaus don't reward Canadians for having debt. They reward for managing credit responsibly, making payments on time and keeping credit usage reasonable.
Why carrying a balance is a not-so-great deal
- Interest adds up fast: At 20% APR (annual percentage rate, which is the cost of borrowing money or using credit in a year), carrying a $1,000 balance can cost you $200 a year if you only make minimum payments.
- Debt creep: Carrying a balance month after month makes it harder to catch up on payments with the total debt growing, especially if you keep using the card to spend.
- Credit risk: A high balance that remains unpaid pushes up your utilization ratio, which can actually lower your credit score.
Not only does carrying a balance not help your score—it can actively hurt your financial future.
OK, but what if you already have a balance?
Life happens. Maybe a financial emergency came up. Maybe spending got away from you. The why doesn’t matter. What matters is you have got options to get above water:
- Pay more than just the minimum. Smaller or minimum payments keep you in debt longer (and banks are profitable because of that). Even an extra $20 to $50 a month chips away at interest faster.
- Target the debt with the highest interest first. With balances on multiple cards, focus on the one with the steepest rate, all while paying at least the minimum on the others. This is called the avalanche method.
- Or, try the snowball method. Motivated more by quick wins? Pay off the smallest balance, then onto the next. Remember you still need to pay at least the minimum payments for other cards, too. And the avalanche method might result in paying less in total interest first. It’s worth it to know.
- Automate your payments. Set up auto-pay for recurring bills like streaming or phone services so you never miss them. For credit cards, start by automating at least the minimum payment to avoid late fees, then add a recurring weekly or biweekly payment to chip away at your balance. When your statement comes in, you can top up the rest — no guesswork, no surprises.
- Consider a balance transfer and/or consolidation. Moving credit card debt to a lower-interest card and/or a personal loan can give you breathing room. Make sure you don’t add new debt on top of that.
Neo tip: Don’t beat yourself up for carrying a balance, but don’t pat yourself on the back for it either. Just make a solid plan to pay things off and stick to it. Every dollar you pay down is a win.
The smart way to use your card
Want to build your credit profile without handing over extra cash to your bank? Here’s how:
- Pay your card(s) in full, on time. That’s the most recommended way to help boost your score and avoid interest.
- Keep utilization low. Aim to use less than 30% of your card limit, but don't sweat it if you go over occasionally. Go back to the previous tip!
- Use your card regularly. A small recurring expense you pay off each month shows lenders you’re active and reliable.
- Set up autopay. Removes the risk of forgetting a due date (and paying interest or late fees).
This myth, busted
Carrying a balance on your credit card is like running with ankle weights—it just slows you down. The credit bureaus won’t thank you with a boost to your credit score, but your bank definitely will appreciate the interest.
The truth: You don’t need to be in debt to prove you’re “good with credit.” You need to show you can use credit responsibly. Paying in full is the gold standard.
