Poll of the Day > somebody was telling me to always carry a small balance on credit cards

(+) Yeah! (+)

to raise your credit score. I guess the reasoning is that your score will raise because you have a continual balance and are using your cards.

I don't understand this line of thinking at all, and here is why(please correct me if I am wrong). In order for your score to raise, YES, you need to USE your credit cards. BUT a credit bureau is going to see a person using but also paying off their cards in full every month and raise their score because they aren't much of a risk. a person carrying a balance every month shows them they cannot pay it off and they will be hesitant to raise their score as much.

Like, I can only speak for myself. I got my first credit card at age 24 and have paid them off in full every month except for 3 when I was tight with money, and my score is around 770. I've almost never carried a balance, and my score is very high.

I feel like people think the credit card companies(either visa/mastercard/amex or capital one, citi, etc) are the actual agencies giving out credit scores, so the thinking might be you need to make them money to help you out. They are related, but the agencies adminstering credit scores are different(equifax, etc). Like, i've basically stolen things from capital one and other companies(flights, cash back, intro offers) while paying zero in interest or fees, and yet my score has risen.

They either are mistaken entirely, or they meant that there needs to be some usage of the credit line (as you pointed out)

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The person talking to me last night said specifically to carry a small balance on it. I'm pretty sure they meant carrying a balance and paying some small level of interest instead of just simply using the card.

I believe it doesn't take past balances into account, so if you owed $1000 yesterday it wouldn't matter if it was $0 today. Overall your balance has a negative effect.

It lays it out pretty clearly on any of those credit checking websites. The only reason you would want a balance at all is if you want to avoid your account becoming inactive, active accounts have a positive effect as they want to see that you can manage multiple accounts. Aka buying a pack of gum every month and paying it off immediately.

I see their only practical use as preventing fraud and proving to banks that you're fiscally responsible. The convenient loans they offer are just useless imo. Just save $1000 and you have a credit card with a $1000 limit for the rest of your life. Or if you're fast (like me) they will literally just make you money with cashback. They kind of exist to profit off desperate or... bad spending... people.

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argonautweakend posted...

I'm pretty sure they meant carrying a balance and paying some small level of interest

I was told something similar ages ago. After almost two decades of having and using a credit card, I feel so long as one is paying off yer balance regularly, keeping yer balance relatively low compared to yer maximum credit, not opening too many new cards within a short time, not taking out massive loans close together, etc, etc. yer credit score will slowly rise over time.

Plus unless yer going for a massive loan (i.e. car, house, business, etc.) keeping a high credit score, to my understanding, is that not important. It is important to have a score and start somewhere but to actually need a high score is situational.

Yellow posted...

They kind of exist to profit off desperate or... bad spending... people.

Funny enough, I recalled someone on GFAQ telling me banks supposedly prefer clients who regularly pay off their balance over those who keep carrying a balance and pay interest. Supposedly the former is more reliable and banks still make money from all those small transaction fees whenever one uses a credit card whereas those who keep carrying a balance and paying interesting, they might not be as reliable in terms of profit.

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I also feel people are overly concerned with their credit score

It's a fun number to know but it really doesn't matter so long as you're doing everything right in the first place

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Clench281 posted...

I also feel people are overly concerned with their credit score

It's a fun number to know but it really doesn't matter so long as you're doing everything right in the first place

Yes

I just want the number to go up. I don't have any plans for it or anything... but it's high and I'm winning!

Hell most billionaires would topple the economy to see their numbers get bigger.

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I really don't remember specifics anymore but in general I believe:

It's best to be using cards, have car loans, house loans etc that you are paying off more than the minimum each month. I do not think you actually need to have a balance left, but you don't want to pay off the FULL balance if I remember correctly as you get more points for paying off more than the min (but not the total balance).

So if you spend $100 on your card in a month and the min payment is $40, pay $80 of it off, leaving 20, then next month if you spend another $100, pay off $100 total (still leaving 20 on there), so your constantly paying more than the min, but not the total.

I believe that was the way to get your credit up as fast as possible (also it may have had to do with getting your TOTAL credit on a card up too, if they see a balance left over but that your making payments they may offer you a higher credit limit faster.

Sadly I don't remember the specifics but it's something like that.

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I also heard despite your high score you never showed you can pay off large amounts so getting a car loan or mortgage might not be easy.

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yeah you're supposed to keep a balance but always pay it off before the interest is applied

I always pay it off, I don't like to pay interest. I've got rather good credit, but I feel like people worry too much about building credit. Reality is you're going to have difficulty get any big loans without a cosigner for a long time.

BlackScythe0 posted...

I always pay it off, I don't like to pay interest. I've got rather good credit, but I feel like people worry too much about building credit. Reality is you're going to have difficulty get any big loans without a cosigner for a long time.

Maybe, but at the same time we've actually had a lot of little issues come up because neither my spouse or I have had a credit card ever. People were actually berating my spouse for it. Their own mom berated them for it, but had never taught them growing up. Literally trying to get somewhere and basically been told welp you have no options because of it, too bad so sad.

Apparently it can bite you in the ass more and worse than you might think.

ChaosAzeroth posted...

Maybe, but at the same time we've actually had a lot of little issues come up because neither my spouse or I have had a credit card ever. People were actually berating my spouse for it. Their own mom berated them for it, but had never taught them growing up. Literally trying to get somewhere and basically been told welp you have no options because of it, too bad so sad.

Apparently it can bite you in the ass more and worse than you might think.

Uh maybe I was taken the wrong way. You absolutely should get a credit card at 18, you should use it for most purchases because it is safer than using a debit card and I personally don't let interest accrue on my account. I've gotten a few cars and computers and some other relatively small loans that I've paid off and I still required a cosigner when I bought a new car recently. My credit score is very high, but I've never had more than one loan active at once and my credit card is paid off monthly.

Like I said I knew more once apon a time, but you can get a secured credit card to help you start building credit (anyone can get one). Basically your bank takes X amount of money from you and gives you a credit card with that limit, and that works just like a normal one, and builds credit over time. I highly recommend doing this when your young to start building credit.

Also a car loan is great for building credit and you can get one with almost no interest at all (get a used car With extremely low payments cause you pay most of it up front, and then pay more than the min every month). That will boost your credit score a ton.

Credit score IS important, it has tons of effects, it can make a difference on where you can rent, or the security deposit you have to put down and tons of other things. Having a good credit score is very useful, and having a bad credit score can make many things much harder.

There are i'm sure many things you can read/watch online about building credit at this point, so it really doesn't matter that I don't remember much anymore. Just look up ways to boost credit online and i'm sure they will cover all the best ways, but it really is worth it.

Also, if you have student loans, and you are not paying them off, get on an income based repayment plan (Especially if your not working or made less than 12k last year). Seriously this is the easiest way to destroy your credit, and so many people just ignore their student loans and then are amazed their credit score is horrid.

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Credit companies only care how well you can manage debt, which is why maintaining some of that debt while also making payments is preferable. Remember they don't make money unless you're in debt. They don't care about you, they care about their money.

You should maintain a debt of roughly 1/3 of your total credit allowance, without going over 3/4. So if you have a credit limit of $100, you should spend up to $75, and pay it off in small increments until you get it down to around $30 every single month.
That's how I built my credit score. Within a year I went from 0 (no credit history) to a score over 700 (fairly average, if still a little low, for a middle-class adult).

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BlackScythe0 posted...

Uh maybe I was taken the wrong way. You absolutely should get a credit card at 18, you should use it for most purchases because it is safer than using a debit card and I personally don't let interest accrue on my account. I've gotten a few cars and computers and some other relatively small loans that I've paid off and I still required a cosigner when I bought a new car recently. My credit score is very high, but I've never had more than one loan active at once and my credit card is paid off monthly.

I just meant you might be right about the loan thing, but that's far from the only use of a high credit score. Before the bankruptcy my sister was apparently eligible for up to a $50k loan based mostly on credit score with no co signer. Idk how much things have changed with current events though. But she absolutely was pre-approved. I keep hearing so many different experiences when it come to loans I swear.

I've never had a credit card and my credit rating is very similar to yours.
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My bill come in the middle of the month, so even though I pay in full I'm always carrying a balance for the month.

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Item #3 above is probably the most important.

You also need to use your card usually at least once a year or it might get cancelled without notice. That happened to me recently, I forgot about it and it suddenly disappeared from my credit report.

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Also keep track of your accounts. Losing some in the middle isn't the best since your "total available credit" goes down but if your oldest account is closed that effects your "credit age".

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Credit score is reflective of how likely creditors are to make money from you as much as they are a grade on your financial trustworthiness. I wouldn't carry a balance for the sake of your credit though

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BADoglick posted...

Credit score is reflective of how likely creditors are to make money from you as much as they are a grade on your financial trustworthiness.

True. But that's the very reason its easier to get loans for major purchases if you have good credit

that sounds dumb (from og post)

just use the thing and pay it full every month

no need to be weird about it

I would have told them but I didn't feel like getting into an argument. Plus, I'd actually feel kinda bad if I was the reason they realized the error of their ways and that each month they are pissing away their own money because of a mostly false belief about credit.