Carrying a Credit Card Balance Won’t Improve Your Credit Score

I’m one of the moderators of the Personal Finance sub-reddit (at, which routinely sees plenty of credit score related questions. This recent one made my blood boil when user wooga told me that his lender advised him to carry a balance to improve his score.

wooga: I was told by the lender that if I paid down to 1/3 of my balance that it would improve my score by 100 points in a few months, more then it would to keep a zero balance(or pay off each month) which is what I normally do. I didn’t believe it. …

I’m glad he didn’t because it’s flat out wrong.

Lenders would like you to believe that your credit score improves when you pay interest but it’s simply not true. Credit cards report your balance when your statement closes. They report it again when the next statement closes. They are snapshots in time with no information about what happens between those two moments. The reports are the same whether you carry a balance or pay off the balance in full, so carrying a balance does not improve your score.

It’s important to remember that the FICO credit score is designed to calculate the likelihood you will default on a loan. Whether or not you carry a balance is not any better an indicator than your balance at statement’s close. If you charge $500, pay off $500, and then charge $500, you are no riskier than someone who charges $500, pays the minimum plus interest, and carries the $500 forward.

Don’t carry a balance if you can avoid it and certainly don’t do it because you think it’ll improve your credit score.


Best Airline Credit Card Bonuses

One of the ways you can use credit cards to your advantage is to choose rewards cards that offer travel bonuses. You can do even better if you get a credit card associated with one of the airlines. Most of these cards are through major issuers, so you can use them for everyday purchases, while building up miles at a specific airline. If there is an airline that you prefer, you can use an airline credit card to boost your frequent flier miles, and enjoy other perks.

However, you do need to think twice before getting an airline credit card. Airline credit cards often come with high interest rates, so they are not for those who carry a balance. If you carry a balance, it won’t take long for the interest charges to effectively negate the benefits of your airline rewards. Also, keep an eye out for annual fees and other costs. These cards are usually best for the frequent traveler.

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Discover Get More Reward Categories (2011)

The Discover More card is one of the few credit cards that rotates its reward categories. Normally, a rewards credit card is set in its ways when it comes to reward categories. The Discover More card, through it’s Get More program, rotates the bonus category every quarter to something that seems seasonally appropriate. For January through March, you get a bonus on travel and restaurants since lots of people travel (probable to get out of the cold!).

Well, fortunately for us, Discover is also pretty friendly about broadcasting the schedule. Here is the Get More 5% Cashback bonus calendar for 2011:
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Best Zero Percent Balance Transfers (Updated March 2011)

The offers on this page are out dated, you can find the latest news when the April update is released.

If you thought the offers from last month were juicy, this month is going to surprise you as some issuers are really pulling out all the stops. I’ve been watching balance transfer offers for years and it’s been quite some time since someone offered a $100 in cashback as part of a new account promotion and tied it to a card with a 0% balance transfer or 0% purchases offer. I think the issuers are starting to really get aggressive in competing with one another and you, the consumer, benefit from it.

The story last month was longer promotional periods, this month we get to see a little bit of bonus action on the front end coupled with more standard balance transfer promotional rate periods.

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Your Take: Providing ZIP Codes at Stores

The Supreme Court of California recently ruled that retailers do not have the right to ask for a customer’s ZIP code because a 1971 state law prohibits a business from asking credit cardholders for personal identifying information.

I’ve personally never minded when the cashier asks me for a ZIP code but I know a few people who don’t like it. They are concerned that it invades their privacy and they don’t see the purpose of providing it, I agree with them on both counts. That said, if push ever came to shove and I didn’t want to give my real ZIP code, I’d just make one up. I doubt my credit card would be declined though I’ve never put it to the test.

Is this something that concerns you or do you think the privacy issues are overblown?

 Devil's Advocate 

Credit & Debt Are Good For You (In Moderation)

Devils Advocate Logo
This is a Devil's Advocate post.

One of the big lessons from the post-credit crisis era, and you could argue we’re still fighting through the crisis itself, is the idea that cheap credit and cheap debt are bad for you. In general, I’d agree that racking up double digit interest rate debt is a very bad thing, but having access to that credit can be a very good thing.

It’s been a while since I wrote a Devil’s Advocate post but I felt that it was time. There’s been a huge backlash against credit and debt lately, in part because they were a cornerstone of the credit crisis, and I think that anger and fear is a bit unfounded. For every irresponsible borrower, there’s a responsible one taking full advantage of credit and using it in a way that enriches their life. Today, we’ll look at just a few of the reasons why you shouldn’t abandon credit.

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Discover Birthday Double Cashback Bonus Promotion

Discover is running a new promotion where you can earn up to a 2% cashback bonus on up to $500 in purchases. It’s not going to be a crazy amount of cashback, since it’s 2% on $500 in purchases, but if you already use a Discover Card you might as well sign up and get the extra cashback.

There are four cards that are eligible:

  • More Card by Discover
  • Motiva Card by Discover
  • Open Road Card by Discover
  • Miles by Discover -you get double miles, instead of cashback

The promotion has balloons and says “Celebrate your BIRTHDAY” but it doesn’t appear that it actually has to be your birthday month. You just have to pick a month and you’ll earn double cashback on up to $500 in purchases retroactively applied to the start of the month. There doesn’t appear to be an expiration date. Here are the T&Cs:

Sign up to earn 2% Cashback Bonus on up to $500 in purchases from the first day of the birthday promotion month for which you enroll (or the date on which you sign up, whichever is later) through the last day of that month. Purchases earning 2% Cashback Bonus will not count toward your total annual purchases to determine your tier level. These purchases must post to your account by the last day of the month. Allow up to 5 weeks for this reward to be added to your Cashback Bonus account. See Cashback Bonus Program Terms and Conditions for further details about your reward program.

Just a quick word of warning if you have a Discover card you opened for a 0% balance transfer – any new purchases you make will accrue interest immediately since you’re carrying a balance. That and depending on how they put your payments, you may be paying a lot in interest.


How to Protect Your Money While Traveling

When I was 18, I traveled to Europe as an exchange student. I really didn’t know how to protect my money while traveling, and kept all most all of it in pocketbook, in a single form. I was lucky: The only danger my money faced was being spent. If I had been robbed, I would have been hard-pressed to get my money back (although, as part of a student exchange, I would have had help dealing with the aftermath).

True, I was at a disadvantage: I didn’t have a credit card, and I didn’t have a debit card. (This was a looong time ago.) Traveler’s cheques were the way to go when traveling overseas. However, some of the basics of protecting your money never change. It is especially important to be careful of your money if you know you will be traveling to a place in upheaval. Plus, you never know if the country you are in might suddenly become unpredictable, as what happened in Egypt recently.

Before you head out of the country, consider these tips for protecting your money:
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