Will Paying My Credit Card Balance Every Month Help My Credit Score?
Dear Experian,
Is it better to pay off the entire balance on a credit card each month, or to leave a small balance to carry over?
- OHR
Dear OHR,
Paying your credit card balance in full each month can help your credit scores. There is a common myth that carrying a balance on your credit card from month to month is good for your credit scores. That simply is not true.
It's Best to Pay Your Credit Card Balance in Full Each Month
Ideally, you should charge only what you can afford to pay off every month. Leaving a balance will not help your credit scores—it will just cost you money in the form of interest.
Carrying a high balance on your credit cards has a negative impact on scores because it increases your credit utilization ratio.
Your credit utilization ratio, or balance-to-limit ratio, shows how much of your available credit you're using and is the second most important factor in your credit scores. To determine your utilization ratio, divide your total credit card balances by your total available credit.
Always try to stay under 30% utilization overall and on individual accounts; credit scores decrease much more rapidly when you exceed that percentage. Even if your overall utilization rate is low, having a high utilization on just one of your cards can have an impact. For top credit scores, keep your utilization in the single digits.
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What Helps Your Credit Score the Most?
The single most important factor in credit scoring is payment history—whether or not you make all your payments on time. Even one missed payment can have a significant impact on your credit scores.
If you are trying to establish a strong payment history, you can do so by making small purchases on your credit card and then paying the balance in full and on time each month. This practice keeps the card active and your balance well below your credit limit. It also demonstrates that you consistently manage debt well, which can help increase your credit scores.
In addition to keeping your balances low and making payments on time every month, here are other ways you can improve your credit:
- Bring any past-due accounts current. If you have past-due accounts on your credit report, bringing them current is the first step to rebuilding your credit history. This includes paying off any collection accounts.
- Apply for credit only when you need it. When you apply for credit, the lender typically checks your credit through what's known as an inquiry. Although credit report inquiries typically have a small impact on scores, it's best to apply for credit judiciously. Keep in mind that you can check your own credit report as often as you like without hurting your credit scores.
- Order your free credit score. When you order your free credit score from Experian, you will get a list of the top factors affecting your credit the most. Improving on these factors will help your credit scores improve.
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In the past, you were not able to get "credit" for making all your utility and cellphone payments on time. Now, with Experian Boost, you can sign up to have those positive payments added to your report and included in your Experian FICO® ScoreΘ. This can be especially helpful for individuals with a "thin" credit file or those with credit scores below 680.
Thanks for asking.
Jennifer White, Consumer Education Specialist
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About the author
Jennifer White
Jennifer White brings nearly two decades of knowledge and experience to Experian’s Consumer Education and Awareness team. Jennifer’s depth of knowledge about the FCRA and how to help people address complex credit reporting issues makes her uniquely qualified to provide accurate, sound, actionable advice that will help people become more financially successful.
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