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Will Carrying a Balance Boost Your Credit Score?

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It’s a question that goes to the root of the modern credit card, and at Credit.com we hear it all the time: Should you pay your entire credit card bill every month? Or does it give your credit score a boost to leave a small balance month after month?

“Is it better to leave a very small balance on the card so the issuer earns a little interest?” a Credit.com reader using the screen name “DM” wrote us last month.

The answer is simple and unequivocal, Credit.com’s experts say: Pay the whole thing — if you can. Keeping a balance on your card month after month doesn’t improve your credit. In fact, it could lower your credit score somewhat, because scores take into account how much of your available credit you actually use. The more you use, generally, the lower your score.

Which means you get no reward from keeping even a small balance on your card. All you get is extra costs, since all credit cards charge relatively high interest rates on balances.

“It is in the consumer’s best interest to pay the balance in full each month when due so as to not accrue any interest charges,” says Tom Quinn, Credit.com’s credit scoring expert.

DM also had a second question: Should you pay his utility bills with his credit card, or will that hurt your credit?

“In other words, does it ever matter ‘what’ you charge to the card,” DM asks. “Is it looked at differently in some way — good or bad?”

The answer, according to the experts, is that everything you buy with a credit card affects your credit score the same way. You can charge gas, you phone bill or Netflix movies. Whatever you charge, of you fail to pay your bill, it will hurt your credit score. Conversely, if you can pay your entire credit card bill every month, you will avoid interest charges.

“No matter what you charge, it doesn’t matter,” says Gerri Detweiler, Credit.com’s consumer credit expert. “The credit report doesn’t report that type of information.”

Image: Stan Dalone, via Flickr

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  • Hope

    I montor my credit closely and typically pay off my credit cards each month, but some months I leave a small balance ($20 or less) and my credit score is always 5-10 points higher when I leave a very small balance.

    • http://www.credit.com Barry Paperno

      Hi Hope,
      The reason you seem to be earning more points for a small balance vs. no balance may be because, while the scoring formula wants to see you owe as little as possible, which you appear to be doing (kudos to you!), at the same time it wants to see regular credit card “activity” to show that you’re able to use credit and manage it responsibly. And so how does the score know you’ve had credit card activity? It looks for a balance.

      Wondering if this is a Catch-22, where you’re dinged if you carry a balance and dinged if you don’t? Well, not exactly, and here’s why….

      In the past, after paying a credit card balance in full you may have noticed the following month that instead of showing a zero balance your credit report shows the balance you paid in full the prior month. This is actually good for your credit score, in that it tells the scoring formula that you’ve been actively using the card; and it’s good for your pocketbook, as you’ve avoided a finance charge; but, that balance can be hurting your score by raising your credit utilization ratio (balance/limit). What to do?

      Here are some things to do to keep your utilization low and still show activity on a card: 1) charge a small amount on your card and pay it off each month; or 2) if you have to charge a lot on a card, pay most of it off before the current statement date, leaving $10-$20 on it, and then pay the rest by the regular due date the following month; or 3) if you regularly have to charge up to the limit, apply for either a limit increase or another credit card with a higher limit (unsecured card if your score is high/secured card if your score is too low).

      Bottom line, zero balances are good, but some small balance showing on the credit report for is better than zero — as long as it’s not the result of carrying a balance from month to month! Make sense?

      • Mark

        Don’t the banks report at least the following three things though?

        – Purchases
        – Payments
        – New Balance

        So even if New Balance is zero, wouldn’t the Purchases provide the same (or, more accurate even) information regarding account activity?

  • Tom

    I’m concerned that if I never carry a balance from one month to the next, the bank will never earn any interest. Then perhaps, because the account makes them no money, they will decide to close the account. This probably wouldn’t help my credit score.

    • http://www.credit.com Barry Paperno

      Hi Tom,
      What you’ve described does happen, so you make a good point. And you’re right that the bank closing your account due to your lack of contributions to their bottom line won’t help your score. But it’s not likely to hurt it either, if you also keep utilization low on your other cards.


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  • Vincent

    My strategy for having a small balance without ever paying interest with credit cards: I use my credit cards to purchase everything under the sun and pay half the balance everyweek. The banks still get a cut from the transaction, I never carry a balance over 30 days so I do not pay interest, my credit utilization stays low, I know what I spend and I earn rewards.

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  • Thomas

    I pay the total balance due every month on both my cards and therefore never incur any interest charges. And yet, my credit score was lowered because I had made a lot of purchases during a vacation and was carrying a balance even though it hadn’t come due. I thought paying off the balance due for each statement was sufficient. I will follow the advise here and pay off amounts on the credit card before the due at times where I may be making more purchases than usual.

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  • http://credit.com kyna

    Ok sooo do I pay off the whole balance every month or no? Lol

  • http://credit.com kyna

    And also I have a 1000 dollar limit how Mich should I b using very month ???

  • Eithne Nicole

    Good afternoon!

    I’ve spent the last year doing my best to clean up my financial snafus. One of the things that I did was get myself on a budget; as I am paid weekly, I broke down my bills into weekly payments and pay everything when I get paid on Fridays. It has taken the better part of the whole year to get everything under control, but with this I’ve been able to pay off the smaller of my two credit cards and stay on top of my bills and not splurge on ‘ghost money’ that is sitting in my account, waiting to be used. My credit score is improving slowly, and I was able to get a car loan through Capital One (normally the bane of my existence) with an interest rate under 4% – the dealers couldn’t beat that!

    My question is that when I look at my credit report, it is showing the weekly payment amount rather than the total amount paid. Does this affect my score badly as it looks like it is less than the amount required?


  • http://cspiffynichole@yahoo.com Nichole

    So I have one of each type of credit card: visa, mc, discover, Amex, and two different store credit cards. My total credit limit on them is about $45,000. I charge about 4-5k each month and pay the balances in full each month. My equifax credit score is 779 according on my declined auto loan application letter. I requested $80,000. I’m 25 years old. I make over $100,000 a year. I do not have any loans, and I own a home worth $820,000. I did not buy this home, but it is in my name. I’m trying to understand why I was declined. The reasons they gave are:
    1- lack of recent info on installment loan accounts, or lack of installment loan accounts. (I had a loan for a vehicle, but I put more than 60% down and the loan was only for $20k. I paid it off early.
    2- relationship of balance to high credit on bank/national or revolving/open account (I made sure to pay the everything early in anticipation of this loan so it would report $0 on most cards and only a few hundred on others. I’m guessing this reason means I’m not using enough of my $45,000 credit? Is there a magic percentage I’m supposed to stay around? What is too high and what is too low?)
    3-length of time accounts have been established (my age must be a factor; all the cards were opened between age 18-20 except one store card)
    4-number if inquiries in last 12 months (new store card to blame?)

    • PartisanHackx

      First off i’m answering this 3 years LATE but maybe someone else might read it.
      Credit reports don’t care how much you make PER YEAR. The bank/Credit Union does. You made a mistake putting 60% down. Why were u in a rush to pay it off ??
      You don’t get credit for putting 60% down on your credit report. You should have financed as much as you could and pay on the car for at least 2 years.

  • Barry Paperno

    Hi Nichole,
    I have trouble believing a score as high as 779 would be the reason for the denial of your loan application. fIn fact, with a score like that I wouldn’t even suggest you do anything differently in terms of managing your credit. Sure, you can probably reduce your revolving utilization percentage by a few points – the ideal is below 10% – and avoid applying for any new credit for awhile, but neither is going to do all that much for your already high score.

    The score factors you’ve listed are pretty standard for someone of your aged with a high score who doesn’t have any currently open installment loans. Have you talked to the lender to see if anything other than the credit score might have factored into the decision? Am I missing something? -Barry

  • Jenna W.

    I just graduated college and wanted to start building my credit score, so I just got a credit card. I wanted to use it to buy a new computer, but the one I want is going to be $2,000 and the card limit is $1,250. I have all of the money saved up already, I just thought putting some of the balance on the card and paying it off each month would be a good way to build credit. After reading some articles I’m not sure how much I should charge on the card, and if I should pay it off in monthly installments or all at once? What would you suggest? Thank you!

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