September 21, 2015
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The Myth of Carrying a Credit Card Balance

In a recent survey, 30% of respondents stated they believe that carrying a balance on their credit card will improve their credit score.1 Considering all the intricacies of credit scoring, it’s easy to see why a belief like that could come about; however, the bottom line is that it’s not true.

What is true is that using your credit card and paying your bill on time are strong factors in your favor. The belief about carrying a balance is subject to your definition of the phrase. When you make purchases using your credit card, it could be said that you are carrying a balance at that moment, but the true meaning involves a balance that remains on your account after the Payment Due date. For the purposes of this post, we’ll use the latter definition — and explain why it won’t help raise your score.

The truth about your credit score2

Responsible credit card use does have a role in building your credit score, as it relates to several other factors. If your goal is to increase your score, pay attention to these proven points:

  • Payment History accounts for 35% of your score. Do you pay your credit card bill on time every time? If you do, then you’re on the right track. If you pay after the Payment Due date, especially more than 30 days after, even once, it will show up as a negative entry in your payment history. Perhaps no piece of advice is more important than this — pay your bills on time.
  • Amount Owed accounts for 30% of your score. Owing money on your credit account is not a negative factor in itself. The key point is what percentage of your available credit you’re using. A high percentage of credit utilization can indicate you are overextended and are more likely to make late or missed payments.

It’s a good idea to check your account balance periodically to make sure you’re not using too much of your available credit. Reviewing your account also enables you to spot fraudulent transactions that could indicate identity theft.

Interest charges add up quickly

If you’re leaving a balance on your credit card account after making a payment, you’ll accrue monthly interest charges. Depending on the amount of your balance, this may seem like a small amount, but why pay any interest at all when it’s not raising your credit score?

The process of credit scoring can seem very complex, and it’s not surprising that myths and false information find their way in. To learn the real facts about your credit score, visit myfico.com/CreditEducation/articles/



1 BMO Harris Bank survey, 2014
2 My FICO – Amounts Owed

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