Do You Have To Carry A Balance For The Best Credit Score?
July 31, 2018One of the more confusing parts about maintaining an ideal credit score is how a credit card’s utilization is measured. It’s true that lenders want to see that you have open lines of credit that you’re actually using, but does that necessarily mean you have to keep a balance on a credit card to prove that? The answer is a definitive no, but let me review a few key things to further drive that point home.
Credit card companies report users’ information monthly
While it may seem like the slightest slip-up in your credit behavior has an overnight effect, most credit card companies actually only report account information on a monthly basis. They are reporting the timeliness of your recent payments, the current balance and whether or not the account is in good standing.
How this can help you
Since your credit card company probably doesn’t pick the exact date that your payment is due, as long as you’re using your card on occasion, your credit report will likely still show a balance on your card even if you pay it off each month. As long as you’re paying it off on time each month, that fact is also reported, and the account will most likely boost your score due to responsible usage and on-time payments.
How this might hurt you
If you’re regularly maxing your card out and leaving it that way until your next payment is due, even if you pay it off every month, there’s a strong chance that the utilization of that credit line could be hurting your score.
How to play this to your advantage
- First of all, try to avoid maxing out your card, even if you can pay it off each month. If you have to do that and having a great score is important at the same time, just try to pay the balance off ASAP, rather than waiting until the payment due date.
- Second, if you’re just looking to show proper behavior, simply use your card for one or two expenses you already have, such as filling up with gas or paying your cell phone bill. It’s easiest to maintain the habit of paying it off each month if you only use it for relatively predictable expenses, which allows you to better budget your payments.
- In other words, where people mess this one up is when they rationalize that using their card to splurge on a trip to a favorite store or restaurant will keep their score high, neglecting to factor the extra spending into their budget.
The bottom line is that you DON’T have to carry a balance over from month to month, which typically incurs interest charges, in order to maintain a high credit score. Do your best to pay your card off each month, and enjoy a high score while also keeping your other important financial numbers high.