A friend/reader of mine recently asked me a series of questions about credit scores. Like me, she’s been very financially responsible, only spending what she had, and has therefore never felt the need for a credit card. She put it something like: “Why would I waste time, when I can just pay at the store and not have to worry about paying the bill at the end of the month too?”
But she would like to have a credit history for everything from car loans to a mortgage one day. Right now, she has no credit history or score, just like I didn’t until last year.
After dinner, we went over all the questions she had, based on things she’d learned or that people had told her about credit cards. She wanted to get things straight.
One of her questions was whether she needed to carry a balance on a credit card to get a credit score. She was a bit worried about this, because that would mean paying interest and she wasn’t sure it was worth it. A coworker had insisted that without carrying a balance there was no way she’d get credit.
The coworker was either wrong or confused about terminology. You do not have to carry a balance on your credit card for it to affect your credit history and credit score. That’s a very good thing.
It’s possible that her coworker confused carrying a balance with using the card. In order to get a credit history/score, you do have to make purchases with your card. And you can’t immediately pay them off, either. So paying your cell bill with your credit card, then paying off the credit card that night won’t do much for your score.
To get results, wait until the end of the billing cycle. Then pay the whole bill right away, if you like. As long as you pay the whole balance on your statement before it’s due, you won’t accrue any interest. No interest = no cost to you (unless there’s an annual fee, which you should stay away from). Don’t feel like a bad customer for paying the whole thing off, credit card companies get a small percentage of the money you pay the merchant, so they’re still making money off you.
Addressing another question that worried her, there is also no minimum balance that I know of for creating a credit history/score. Mine shows up for paying the cell bill every month, well under $100. So you don’t have to make $500 of purchases just to get credit. If you don’t want to bother with the card or are concerned about your self-control, then I suggest selecting one normal bill and paying it with the credit card.
So, to summarize, you do not need to carry a balance to get a credit score/history, you just need to wait until you receive the bill to pay it. Then if you pay the whole thing off before it’s due, you pay no interest.