Credit cards: leaving a small balance for 1st time user?

Question

I have been told that it is wise for a first time user (college student) to leave a small balance on your credit card to build credit. For instance, I have a $1000.00 limit on a credit card; haven't come close to maxing it out; at most maybe $500.00 at one time. I have paid $450.00 (leaving a $50.00 balance) most months because I heard it was a good idea for someone just starting out to do so; in order to build my credit score. Any opinions? Thanks....

Answer 1

I think that is bad advice. The best way to build a good credit score is to make sure you pay every bill ON TIME. Whether you are keeping a balance or not, you get "credit" for paying your bills in a timely fashion.

The problem with letting a balance ride is that credit cards charge interest (at very high rates) on your average balance over the entire month if you did not zero out your balance with the last payment. So you are paying high rates of interest on everything you buy with the card, not just the portion you let carry over. So if, for example, you use the card to pay $40 for "dinner and a movie", you end up paying $40.60 (at typical rates) due to the interest charge, even if you pay that portion of your bill as soon as the statement arrives. That may not seem like much, but it adds up if you use the card for convenience and charge a lot of things on it.

On the other hand, if you consistently pay the full amount due each month (zero out the balance) you pay absolutely NO interest at all. A much better deal!

My strategy is to have two cards: one I use for convenience and charge day-to-day things on. I make sure to pay that off in full each month. My second card I use only rarely, when I need to make a big purchase that I'll have to pay off over a couple of months (a new TV or whatever). I'll still be paying interest on that while I'm paying it off, but it won't be costing me interest on my various other credit card purchases while I'm doing it.

Answer 2

Never leave a balance. Even leaving a penny balance will cause interest to be charged on the total amount. I have paid my balance off entirely my entire life and have a credit score over 800.

Answer 3

It is not a good idea. Just having a credit card in good standing is good for your credit history. You are paying exorbitant interest on the balance unnecessarily. This is an urban myth - don't fall for it. If some one checks your credit it will list the credit card and the limit. It will show arrears if you missed the date or payment.

Answer 4

actually quite the opposite. If you carry a balance on your card it lowers a credit score. What increases your score is paying off your balance totally. All carrying a balance does is cost you more money in interest.

Answer 5

Bad advice. Want good advice? Here it is:
Pay off your credit card in full every month. Never carry a balance. Thus you will never be paying interest; you will maintain a supurb credit record; you will sleep soundly at night. Be the only one in your generation not to run up a huge irresponsible debt!!!

Answer 6

It all depends on what you are trying to accomplish here. If you have already established a good credit history then it is ok to cancel the Amazon card and it will not affect your credit. If however you are trying to establish a good credit history then my advice is charge a small amount and pay it off in 30-60 days. Honestly the having 3 cards with such low limits is not hurting you. The problem arises when you have several high limit cards regardless of balances because when loan officers are processing debt ratios they view all credit card limits as debt regarless of actual balance. That being said you seem to be in a good postion so no action is really required.

Answer 7

I heard this too, from my brother-in-law. I wasn't sure though. I will keep this one on my watch list because I am curious to hear what others have to say. It makes sense to me.