Should I pay my (secured credit card) the full amount everytime I get the bill or should I pay the minimum payments every month? I’m getting conflicting answers about this. I don’t want to ruin the credit score by paying the minimum or not build credit by paying the full payment every month so what should I do?
In full if possible and on time fer sure.
Here are the guidelines summarized:
- Maxed out credit cards = negative effect on credit score.
- Paying the full credit card balance every month = pretty good.
- Maintaining a 20 - 30% of credit limit on all cards = great. You must pay on time or the benefit is more than offset.
Please note that the real world difference between #2 and #3 is rather small. #2 is better financially but #3 boosts your credit score some because it shows that you can manage true debt.
If you have multiple cards, try to keep each in the 20 - 30% of their credit limit.
PLease note that the above is written from the perspective of trying to maximize your credit score only. The best overall strategy is usually to pay your credit card balance in full every month.
There are some scenarios like buying a house when you have a borderline credit score and you may need to maximize your credit score at any cost but you will know about that ahead of time. Adjusting your credit card balances will affect your credit score quickly.
Paying off your balance in full every month certainly isn’t going to “wreck” your credit.
I will reply yet again because thoughts are coming out in spirts. Most people don’t have a good handle on what goes into credit scores so there is a lot of misinformation out there. You can get your credit reports from the 3 major credit agencies and usually for free. Google ‘free credit report’ and carefully select the best offer.
The credit reports are like a report card. It will usually show your credit score and then the detail of everything that went into it. False information is common and you should have that fixed. By studying your credit reports, you can see what they are actually using and not using as data. That helps you seperate the bad advice from the good.
Thank you, Shangnasty. Those are excellent points.
I don’t fully understand what you mean. Ok, let’s say I have a $500 limit on my credit card. You mean I should only charge 20-30% on that card and never the full $500 amount. So to build good credit I should only charge the max of $150 and I should only pay a minimum of let’s say $20 a month on it or I should charge $150 on my card and pay that whole $150 off every month?
I wasn’t thinking about low limit cards when I wrote that. Personally, I would just pay off the card every month. That is the best general advice.
I am going to have to make an educated guess on the other question. I think that the 20 - 30% guideline applies to your revolving balance but not your current balance. That is, you can charge up to the limit just fine but you don’t want to only pay the minimum and let most of that balance revolve to the next month. Paying all but 20 - 30% of your limit and letting that revolve is what maximizes your credit score.
Unless you really need to inprove it right away, I would just recommend doing what ever is cheaper, which is to pay it off in full every month. You don’t what to get into the habbit of doing less - it will cost far more in the long run. Time will bring it up for free.
I second those who say to pay it in full. Your credit score will still be very good. And with the money you save from not paying finance charges, you won’t need as much credit anyhow!
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- I was told the (aproximately) 20-30% figure for carrying a balance every month as well, by a credit union manager no less. That is, ideally you want to carry that much balance of the credit card’s maximum from month to month. There are two reasons for this being preferred for your credit rating: the first is that you carrying balances is how credit companies make their money. The second is that if you can pay it off in full every month, it means that you are really just substituting the credit card for pocket cash–and in that case, you really didn’t need credit anyway, and so weren’t really “managing” it as such. Being in debt is the only way to obtain a credit rating.
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- I was told the (aproximately) 20-30% figure for carrying a balance every month as well, by a credit union manager no less. That is, ideally you want to carry that much balance of the credit card’s maximum from month to month. There are two reasons for this being preferred for your credit rating: the first is that you carrying balances is how credit companies make their money. The second is that if you can pay it off in full every month, it means that you are really just substituting the credit card for pocket cash–and in that case, you really didn’t need credit anyway, and so weren’t really “managing” it as such. Being in debt is the only way to obtain a credit rating.
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I believe the theory in keeping a small balance on the card is so there is a record of making a payment each month.
If you look at your credit report it shows every debt that you have and a history by month of your payment either being “on time” or “later than 30 days”.
So if you had a credit card with a continuous balance that you paid good on every month for 5 years it would show up as a record of 60 consecutive on time payments. Which looks very good to creditors.
Whereas if you only used a card a few times a year and paid the balance in full each time it would show up with a history of 25 various on time payments over 5 years. Which is still great but I think a history of 60 ‘good’ payments beats 25 ‘good’ payments.
Besides taking into account the number of overall ‘on time’ payments versus ‘late’ payments I believe the only other thing they look at is credit extended vs. credit owed. Like others have said, maxed out cards don’t look that great, however, keep in mind that they look at overall extended vs. owed. So if you have 4 credit cards with a limit of $10,000 on each and have $2,500 sitting on each, that’s no different in their eyes than having 4 with a limit of $10,000 on each, 3 sitting empty, and one maxed out. Either way you have $10K used of your available $40K.
Credit reports do not distinguish between minimum payment made, triple payment made, paid off in full. Just on time or not.
Here’s some more good info on it.
Nope.
Carry a balance, for at least several months, making decent payments.
Stay away from the credit limit.
What **Philster **said.
What if you used your CC every month, many times a month and paid your balance in full every month, how would it show?
FWIW - I don’t really worry about my credit rating, etc. I know I’m a good credit risk should I need to borrow. But I was curious about my credit score, since I hear a lot of people talking about it. And I tried to find out my own credit score, just for yuks, but I found out it is NOT free. I can, by law now, get a credit report free, but if I also want my score, I have to purchase it. Apparently, the credit reports are generated for all creditors to use, but the actual score is a creation of the various credit bureaus and they are somehow proprietary. At least that’s what I find when I go to various sites that offer free credit reports. So, either I haven’t looked hard enough, or that aspect of your credit profile is not free.
It wouldn’t be bad, per se, but it does not create the ideal profile for how you are demonstrating the abiity to handle balances.
It’s like a utility if you pay monthly. A loan, or revolving debt that you carry (credit card) shows your ability to extend yourself and pay the loan…**in addition to which you are more favorable to a lender, because lenders are businesses, and they would like to lend money to people who pay interest on that money ** (credit card balances).
Geeze, never paying interest tells a lender (who is in business for profit), that you are not the greatest person to extend credit to. Not bad at all, but not great either.
Think about it.