Myth Busters: Do You Need to Carry a Balance on a Credit Card to Raise Your Score?

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Updated on Friday, September 10, 2021

There is one persistent credit card myth that befuddles consumers from all walks of life. Parents tell children. Friends tell each other. Managers lecture employees. “You should carry a balance on a credit card,” they announce in authoritative voices. “It’s good for your credit score.”

In reality, there is absolutely no need for you to carry a balance on a credit card, and it is not a good way to build a strong credit history. Carrying a balance can, in fact, hurt both your credit score and your wallet.

Let’s break this down, and end the confusion for once and for all.

You have two main options for paying your credit card bill

1. Pay the Minimum Due

When your statement comes in the mail, or via email, or appears in the online portal for your credit card, it will show the total balance due, as well as a minimum amount due. If you owe $1,500, for example, your minimum due may be just $45.

Sure, you can pay the $45 and your credit report will reflect that you paid on time, and this won’t hurt your score. However, this strategy will ding your wallet because you’ll start paying interest on the outstanding balance due (unless you are still in a 0% APR promotion period).

2. Pay the Entire Balance

This one is simple and should be your go-to move, since you’ll avoid paying interest on any unpaid balance. When you have a balance due and it shows on the online portal, or when you get the statement in the mail, pay it off on time and in full by the due date. In this case, your lender, your credit score and your wallet should all be happy.

Where the Confusion Probably Started

This myth of carrying of balance to boost your credit score may have started because many personal finance experts advise consumers to be active users of credit in order to build a history and be desirable to lenders.

It is true that you should actively use your credit cards to demonstrate responsible credit use, and to prevent a card issuer from closing a card due to inactivity. However, this doesn’t mean you need to carry a balance. All you need to do is use your card on a regular basis, then pay it off.  Even making a small monthly charge (say, your phone bill) can do the trick; this is something that can be set up automatically.

Then, every month, you should pay that charge off in full. What you shouldn’t do is just pay the minimum due – thus carry a balance. Again, while it doesn’t hurt your credit score to only pay the minimum due, you only end up paying more in interest to the bank. Plus, if you’re carrying a high balance relative to your credit limit, then that could actually hurt your credit score. Why pay your lender more than what you paid when you made the charge to begin with? There is simply no benefit to this.

To Put It in Simplest Terms

  1. You don’t need to carry a balance to have a good credit score. In fact, carrying a high balance on your card can actually hurt your credit score. The credit scoring companies like to see that you’re not buried in debt and the less debt you have, the better for your credit score. Plus, when you carry a balance you’ll be assessed interest charges on top of what you owe. You can avoid interest charges entirely if you opt to pay off what you charge every month.
  2. You do need to be an active user of your credit card if you want to build credit as the regular reporting of borrowing and repaying contributes positively to your credit report. Making even small purchases on the card on a regular basis and then paying off the balance will have a positive effect on your score, as it will demonstrate you are a responsible user of credit.

What If You Can’t Pay in Full?

If you’ve charged more to your credit card than you can afford to pay off at the end of the month, you should at least pay the minimum due, plus as much as you can afford on top of the minimum. Not paying at all or waiting until after the due date will result in major damage to your credit score.

One missed payment reported to the credit bureaus (typically 30 days after the due date) could knock up to 100 points off your credit score. So, if you’ve put yourself in a tough situation, at least pay the minimum by the due date.

One way you can avoid paying interest if you can’t pay your balance off in full is by considering a balance transfer card. With a balance transfer credit card, you can move your existing card balance to a card offering an intro 0% APR for anywhere from 6 to 18 months or longer. Thus, you can pay your debt off a bit more slowly without incurring wallet-damaging interest.

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