Keeping a small balance on CC good for score?

[Bades]

I just heard this tonight from a buddy who was trying to get a credit limit increase but was denied. The phone rep told him he should carry a small balance every month on his CC to help his score...

This seems absolutely ludicrous!

Is this really true? They want you to incur interest charges every month to help your score??

[disneysteve]

That is absolutely unequivocally false. I would report the rep who told a customer that.

The credit bureau doesn't know - or care - if you carry a balance. All they care about is how much of your credit line you are using and if you pay your bills on time.

Never, never, never carry a balance on your credit cards for any reason.

[josetann]

I think there MAY be a bit of truth to this.

#1. If you hardly ever use your card, the company has no idea how well you can manage the credit limit that you already have. Plus, if you never carry a balance, you're not making them any money (so, not much of an incentive for them to give you an even large amount of "free" credit). Now, most of us have no idea just exactly how or why a company gives credit increases (though there are lots of educated guesses), and I doubt the rep really knew himself/herself, and was probably just repeating what he/she was told by someone else (who also didn't know). Anyways...it is entirely possible that a company will reject a credit limit increase because of under-utilization, not carrying a balance, etc.

#2. Again, no one's 100% sure how a FICO score is calculated. If you pay a card off before a bill is generated, and get a bill with a $0 balance...will it get scored the same as a card that's never used? In the same vein, if you charge it up to 90% of the limit, and pay it off the day the bill is generated...your report will likely show a 90% utilization, which is way too high. So what to do? I dunno, but I'd probably use the card every few months, wait until AFTER the bill has come out (so there should be an actual balance due), and pay it well before the due date (so there's not a penny charged in interest). But...I'm definitely no expert (so take what I say with a grain of salt).

[disneysteve]

The phone rep told him he should carry a small balance every month on his CC to help his score

#1. If you hardly ever use your card, the company has no idea how well you can manage the credit limit that you already have. Plus, if you never carry a balance, you're not making them any money (so, not much of an incentive for them to give you an even large amount of "free" credit).

You are addressing a different issue. OP was asking about carrying a balance to improve one's credit score. It will not. The act of carrying a balance doesn't affect your score. My credit score is over 800 and I have never carried a balance on a credit card.

The FICO folks also don't care if you are generating revenue for your credit card company. And your credit card company primarily cares about your credit score. As I said, my score is over 800 as is my wife's. On our 4 main credit cards, we have close to $100,000 in available credit despite never having carried a balance on any of our cards.

Whether or not you should use a card periodically, when you should pay the bill and what percentage of your credit line you should utilize are all separate issues.

[MonkeyMama]

Consider the source of this advice. Lenders (credit card companies, car loan companies, mortgage companies) will of course tell you this. There is no truth to this, but most of the population does actually believe it, because it is a myth that is so often perpetuated.

Investment institutions tend to say the same thing (they'd rather you keep or take on new debt than cash out any investments).

Of course, so many people have heard and believe this myth, that well-meaning people without any stake will tell you the same thing. But there is no doubt these myths are perpetuated by the lending and investment industry.

I'm in the "never carried a balance on anything/800+ credit score" club. Mortgage excepted, but I had a great FICO before I ever had a mortgage. People tell me all the time that this is *impossible,* like I must be crazy or something.

[josetann]

You are addressing a different issue. OP was asking about carrying a balance to improve one's credit score. It will not. The act of carrying a balance doesn't affect your score. My credit score is over 800 and I have never carried a balance on a credit card.

You ignored #2. #1 addressed why the person may not have received a credit line increase, and why carrying a balance might help. Heck, #1 did say "and I doubt the rep really knew himself/herself, and was probably just repeating what he/she was told by someone else (who also didn't know)." #2 addressed why carrying a balance MIGHT help your FICO score. By carrying a balance, I didn't mean you had to carry a large balance month to month; what I meant is that you have to carry a balance just long enough for it to show up on your credit report. So you charge $50, wait until AFTER you get the bill, then pay the $50 before the bill is due. Is that carrying a balance? To me, YES IT IS...but only because I'm so credit averse. I much prefer to pay off the card the same day a charge is made to it. But that MIGHT affect one's FICO score negatively. But only MIGHT...because no one's 100% sure just EXACTLY how the FICO is calculated. Hence FAKO scores.

Just to be clear, I don't think I'd ever advocate paying interest on a debt just to raise one's FICO score. Waiting until after the bill has been sent out, maybe...put only paying the minimum and letting the rest carry over to the next billing cycle, NO!

[Bades]

what I meant is that you have to carry a balance just long enough for it to show up on your credit report. So you charge $50, wait until AFTER you get the bill, then pay the $50 before the bill is due. Is that carrying a balance?

That's an interesting take on this. I never pay my card off until the month is over, generally I have like 3 weeks to pay it off? So when May comes to an end here in a week, I have until like June 2Xth to pay it off. But I generally pay each bill a few days after each month is done.

If this is what they mean by carrying a balance, then that is a bit confusing.

[disneysteve]

So you charge $50, wait until AFTER you get the bill, then pay the $50 before the bill is due. Is that carrying a balance? To me, YES IT IS...but only because I'm so credit averse.

Ahh! That's where your post confused me.

I, and most others, would disagree. Paying your bill in full and on time is NOT carrying a balance anymore than paying your electric bill or water bill in full and on time is carrying a balance. In each case, you are paying for goods or services you've already received previously.

If this is what they mean by carrying a balance, then that is a bit confusing.

No, that is not what people mean when they say "carrying a balance." Carrying a balance means that you have not paid your bill in full and carried over some of it into another billing period. So if your bill last month was $1,500 and you only sent in $500, you are carrying a balance of $1,000. If your bill was $1,500 and you paid $1,500, you are carrying no balance.

[Bades]

No, that is not what people mean when they say "carrying a balance." Carrying a balance means that you have not paid your bill in full and carried over some of it into another billing period. So if your bill last month was $1,500 and you only sent in $500, you are carrying a balance of $1,000. If your bill was $1,500 and you paid $1,500, you are carrying no balance.

Right, that's what I've always thought too.

[Like2Plan]

I just heard this tonight from a buddy who was trying to get a credit limit increase but was denied. The phone rep told him he should carry a small balance every month on his CC to help his score...

This seems absolutely ludicrous!

Is this really true? They want you to incur interest charges every month to help your score??

As already discussed above--just using your CC will result in a balance being reported to the credit bureau even if you pay in full each month.

I suspect the credit limit increase may be partially tied to how much your friend uses his card. I have noticed that in our household. DH's credit limit was about twice my credit limit (this goes back to before I retired and our incomes were about the same). The only difference was we mainly used two of DH's CCs (pay in full each month) and my CC's were used about once a year.

[JoeP]

Why is one's credit score important? Unless you need to borrow money, there is no need for a credit score, is there?

[Petunia 100]

Why is one's credit score important? Unless you need to borrow money, there is no need for a credit score, is there?

True, your credit score only matters if you wish to buy a home, rent a home, buy insurance, or apply for a job (in many but not all industries). If you will never do any of those things, then don't give it a thought.

Seriously, there is no reason to NOT have a good credit score. Contrary to what some will tell you, you don't have to be in debt to have a good score. Just pay your bills on time, something we should all do if we possibly can anyway.

[josetann]

That's an interesting take on this. I never pay my card off until the month is over, generally I have like 3 weeks to pay it off? So when May comes to an end here in a week, I have until like June 2Xth to pay it off. But I generally pay each bill a few days after each month is done.

If this is what they mean by carrying a balance, then that is a bit confusing.

No, I don't think it's what is generally meant when someone says "carrying a balance." I actually didn't even use that phrase in my first reply

BUT...if you're someone like me, who would charge $100 to a card, then go home and immediately pay it off (or get frustrated if you're made to wait until the next day, because some companies don't let you pay more than you owe, and a pending charge doesn't count), then when the bill comes out you owe $0. So each month, a $0 balance is reported to the credit bureaus. In such a situation, it MIGHT be helpful if you just leave a $20 balance or so on there, just long enough for it to actually show up on the bill (and thus get reported to the bureaus...note that it's just my experience that the bill amount is what shows up on the credit report, though it's entirely possible that a company would update on a completely different, random date).

So...if someone was like me, rarely used a card, and always paid off the card the same day (or next) that a charge was made...it's definitely plausible that they'd get denied a credit increase and their FICO wouldn't be as good as if they just let that balance ride until bill time. I just got a bit long-winded, that's all

[Stump1000]

As already discussed above--just using your CC will result in a balance being reported to the credit bureau even if you pay in full each month.

I suspect the credit limit increase may be partially tied to how much your friend uses his card. I have noticed that in our household. DH's credit limit was about twice my credit limit (this goes back to before I retired and our incomes were about the same). The only difference was we mainly used two of DH's CCs (pay in full each month) and my CC's were used about once a year.

As long as you pay in full before the end of the credit card cycle, no balance will be reported. They report the balance that your statement shows.

[kork13]

As long as you pay in full before the end of the credit card cycle, no balance will be reported. They report the balance that your statement shows.

Another thing to consider, the credit bureaus don't report a history of account balances. The only balance your credit report will show to anybody who looks at it is your most recently reported balance. So you could show $0 balance for 11 months of the year, then in 1 month have a reported balance of $4000. If someone pulled your credit during that month, they'd see a $4000 balance, with zero indication of the 11 previous months of $0.

Honestly, if you're paying off your balance monthly, the reported balance means diddly. I never care what my statement balance is, because whatever it may be, I always schedule a payment for the day before the bill is due, and it's done. Some months it's a $13 balance, some months it's $1500. Doesn't matter to me, and doesn't matter to the credit bureaus.