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Home / Credit / Credit Myth: Carrying A Balance Is Best


Carrying a Balance on Credit CardOne of the most common credit myths that I have heard is that you have to carry a balance on your credit cards in order to have a high credit score. While that is a credit myth, there is a small kernel of truth in there if you dig deep enough.

The Myth

Carrying a balance does nothing to improve your credit score, but it can lower it if you carry a balance that is more than thirty percent of your total credit limit. This is called your debt utilization ratio and accounts for thirty percent of your credit score from FICO.

The Kernel

The kernel of truth in this myth comes from the fact that on time payments account for thirty-five percent of your credit score. You have to make your payments on time in order to have a high credit score, so how is carrying a balance a myth, you may ask? Simple, nothing says you have to carry a credit card balance from month to month. You can use your card and pay the balance in full each month. By doing so you keep your debt utilization ratio very low(boosting your score) and have made on-time payments, further boosting your score.

A case in point. As recently as two years ago I had super, super subprime credit. My score hovered somewhere between the basement and just above purgatory. I obtained a credit card for people who have bad credit from Capital One. I am not plugging their products, just telling a bit of my story. Before applying for the card I paid for my credit score from Experian. It was 503. Ugly as hell to be sure. I made six on time payments by charging one tank of gas each month and paying in full a week later. My score jumped to 560. After making 18 payments on time and never having a balance over thirty percent of my credit limit, my score according to Experian was 659. Granted, the worse your credit is, the more dramatic the rise in score can be, but you get the point.


About the author: Jerry Coffey


Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.


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