Comments on: Don’t Carry Debt To Improve Your Credit Score

By: Jack

Jack — Sun, 25 Apr 2010 02:36:05 +0000

Wonderful article!

Here’s a way to help your credit score that is seldom written about…………..

The difference between carrying 75-80% balance to available credit vs. 0-15% balance to availabe credit on your credit cards can amount to as much as a 30-40 point reduction in your score for THAT month. If you go over the limit, I’ve seen it reduce my score as much as 60 points.

So for the best continuing score, I stay under 15% of my credit card credit limits.

This does not mean you can’t charge more than 15% of your available credit limits. I often find myself having charged 80-90%, but THERE IS A STRATEGY so it does NOT hurt your score.

After watching my reports for over two years, it appears the credit card companies report my balances (probably yours too) to the Credit Reporting Bureaus (CRB’s) on the LAST day of the month. Whatever your balances is with them on the last day of THEIR month is what they report as your balance to the CRB’s – which the CRB’s use to determine your debt/credit utilization ratio.

So, pay down your balance to below 15% of your available credit by the 26th of the month so the credit card companies have time to get your payment in their computer. Stop charging until about the 6th of the next month to give yourself a little time cushion.

In other words, charge between the 6th and 26th, pay it down before the last day of the month, take a 10 day break and then start charging again if you need. Same strategy every month – it’s never failed me.

Learn the game – play to win!

Hope this helps someone.

By: Andy Jolls

Andy Jolls — Wed, 17 Jun 2009 15:12:01 +0000

Jim, very nice post. I sometimes recommend a car loan – for expats as an example – to build credit. But the other thing I recommend for young people is a small personal loan for say $500. Sure, I get your argument that it’s financially wrong, it depends how quickly someone needs credit. I absolutely agree that it never makes sense to carry a balance on cc’s. That’s FUD from payday lenders and the like.

By: Jim

Jim — Wed, 27 May 2009 13:40:24 +0000

In the spectrum of “good things” for you, having zero debt, a fully funded emergency fund, and saving for retirement are clearly better. However, nothing stops you from having both. Get a credit card and charge your groceries to it because things like insurance will use your credit score to adjust your premiums. Lower premiums means more for your emergency fund, retirement, or general savings.

I say that because you sound responsible, getting into CC debt isn’t going to help savings no matter what you save on your insurance premiums!

By: labelcd6

labelcd6 — Wed, 27 May 2009 13:10:36 +0000

The last thing I care about is my credit score. That may sound ignorant, but I care much more about having zero debt, having a fully-funded emergency fund, and saving for retirement.

If those things don’t show that I’m credit-worthy, then I don’t care about being credit-worthy.

By: That One Caveman

That One Caveman — Tue, 26 May 2009 21:20:05 +0000

I shouldn’t be surprised that people would actually do this, but I still am. Except for the 0% balances I pay off over time, I pay my credit card in full every month. I couldn’t imagine using credit cards to “finance my credit score”. What a bad idea!

By: Patrick

Patrick — Tue, 26 May 2009 00:09:54 +0000

I never understood anybody who said that it’s good to carry balance on your credit cards. I use credits cards, but I pay them off immediately and mostly to get rewards from them. Great article as usual Jim.

By: oliver

oliver — Mon, 25 May 2009 07:47:00 +0000

Your article is an eye opener but one other thing I thought was always true was that your credit score takes in account for credit utilization. Most credit company will increase your credit limit unless they feel that you need higher amount and that you do carry some balance for a little while so that they can make some money off of you. Now a days if you don’t carry a balance and just keeping paying off they actually start lowering your credit limit is that true ?

Do you have any information that states otherwise on increasing credit limit so that your utilization ratio goes up ?

Thanks

By: thomas

thomas — Mon, 25 May 2009 05:27:45 +0000

Yeah, I never really thought the “pay over time” method really worked. Pretty sure that this was some “advice” from credit issuers or the credit agencies. They are the Hallmark of the financial world.

By: Splendor

Splendor — Sun, 24 May 2009 15:00:12 +0000

Yeah…best cc advice.

By: Matt Jabs

Matt Jabs — Sat, 23 May 2009 07:58:16 +0000

Excellent advice which I will most likely follow once I get the old balance paid off within the next 5 months here…CAN’T WAIT!

Here’s my question. Do you have any knowledge, or what is your opinion, pertaining to whether people who employ this method (use CC but pay it off each month) spend more because swiping the plastic is “just too easy”?

I have an opinion but would like to hear yours.

By: eric

eric — Fri, 22 May 2009 02:38:08 +0000

Hmm…I think the myth I hear most often is about canceling credit cards. Although it may jar with common sense, canceling your accounts often lowers your score because you lose your credit limits and possible long history with them. So I think it’s better to leave the account and cut up the card instead if you rather not use it.

By: Andrew

Andrew — Thu, 21 May 2009 23:48:15 +0000

Either one is fine; just don’t make any new charges, or they will accrue interest from the date you charged them, and payments will go to the 0% balance. This particular shenanigan (is there even a singular of that word) is one of the things the new credit card reform bill outlaws.

By: Kathryn

Kathryn — Thu, 21 May 2009 22:37:11 +0000

See, this is what had me confounded with the Liz Weston book I won from the show. It kept saying to take out a small loan to boost your score but it just debt make any “cents sense” to me.

By: Robert

Robert — Thu, 21 May 2009 21:03:19 +0000

Great article. I needed this because I read on Lifehacker that you shouldn’t pay off your balance entirely every month to improve your score.

Also, since I do have a discover card now with 0% interest (for 6 months)should I go ahead and pay off monthly balances or partially? Or am I wrong in my assumption and my score will be the same either way?

Love your site btw.

By: carla

carla — Thu, 21 May 2009 20:38:49 +0000

Good advice all around. Keeping your balance low (or whatever you can manager) and paying it off in full is the best way indeed.