NEW YORK (MainStreet) – No, carrying a huge balance on your credit card isn't “building your credit.” It's holding it hostage.
As credit card debt returns to pre-recession levels, U.S. cardholders are attaching high stakes to some all-too-familiar credit card mythology.The Federal Reserve Bank of New York notes that credit card debt increased by $17 billion last year, to $700 billion. The Federal Reserve, meanwhile, put total revolving debt at $887.9 billion in January. As several financial advisors have shared with us, though, there are far too many people coming into their offices with the belief high card balances build credit.
“It is definitely not better for your credit to carry a high balance,” says Matt Schulz, senior credit card industry analyst for CreditCards.com. “In fact, job No. 1 for anyone with a credit card is to pay your balances off – on-time and in full – each and every month.”
Unfortunately, not a whole lot of people do. The average per card carried per person is as low as $1,098 for cards that don't carry a balance to $7,743 for those that do. TransUnion puts the national average in the middle at $5,234 per person, which is still less than the pre-recession high of $6,276 in 2008. That debt has crept steadily upward, though, even as the percentage of U.S. households with credit cards carrying revolving debt has decreased from 44% in 2009 to just 34% today, according to the National Foundation For Credit Counseling.
That means there's a smaller pool of cardholders to tell the younger generation how to use cards responsibly and effectively. Joe O'Boyle, a financial advisor with Voya Financial Advisors in Beverly Hills, Calif., specializes in educating younger investors in the importance of retirement planning and says his youngest clients enter his office completely misinformed about handling their credit card debt.