Regarding credit cards: is it better to pay off the monthly balance or keep a small balance each month?

Question

I've been told the credit agencies want to see you "manage" debt, and not necessarily create, them immediately pay it off. Part of the credit game so the banks can make money off balance via APR. Is this true?

Answer 1

It's not really just so they can make money... they want to see that you can handle a long-term debt responsibly, by making and not missing regular payments. When you show you can do this, it gives you a better credit rating. That being said, it's better to do something like finance a car with a relatively low interest loan, rather than keep loans on high-interest credit cards. Many purchases on credit can be made with "no interest due within the first year" as part of sales promotions. If you use that kind of financing and pay it off in regular payments over the course of a year, then you lose nothing in interest and still gain a good credit rating from it.

The caveat is that you would have a need for and be able to afford to make those purchases.

Answer 2

The important thing is to show a consistently responsible use of credit. Carrying a balance will ultimately cost you more as you will be charged interest on that balance. If you do carry a balance, keep it under about 20-30% of your credit limit or lenders may see you as more of a credit risk since you are carrying more debt.

Banks do make money off of interest, but keep in mind that the credit bureaus (Experian, Equifax and TransUnion) maintain your credit report files which the banks leverage to make lending decisons. If you haven't already, sign up for a credit report monitoring service so you can monitor how banks view you as a credit risk. You can learn more about your credit report monitoring options here:

http://consumercompare.org/creditreport/

Answer 3

What you've been told is true. Credit card companies cannot give you a rating or show on your credit report that you have used the card at all if you're paying it off every month. If it's a revolving credit card - by all means Yes! pay those off every month, but the others you should pay off in three months and on time for them to show favorabily on your credit report. This practice is a part of building your good credit history.

Answer 4

I was recently divorced and left with pretty stinky credit as a result. I started maxing my card every month and paying it off right away.... I have been doing this about a year along with a few other things (paying old debt on other issues) and I've already raised my credit score almost 100 points!!! My advice would be to pay it off....

Answer 5

You are building great credit by using your credit card and paying it off in full every month. This shows that you can manage your money - you only charge things that you can afford. Good job!

Answer 6

Just pay it off, you may not be the perfect customer to a bank but this is still very good, and you don't have to maintain a high interest balance. Nobody will penalize you for just paying it off every month.

Answer 7

PAY ATTENTION. LIVE DEBT FREE. You can live better without the nonsense called credit.

Look around you. Look at how it destroys and keeps people paying for "junk" all their lives. Use your parents as a guide.

WHAT IS WRONG WITH US? How come we don't see this?

Please pay attention to what is around you and go in a different direction.

Get a debit card and forget about it.

Answer 8

Many gave you great answers in saying pay off in full every month.

I have to agree with David T - pay off whatever you have to pay interest on every month.
Save the payment history for the times that you receive 0% interest promo's.

Answer 9

Who cares what they want?!?!?!?

Pay it off every month. Why on earth would you care that your card provider wnats you to pay interest?

Answer 10

dude forget that whole "manage" thing, just pay it off full it's a lot better.