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Do You Need to Carry a Balance to Get a Credit Score?

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.


Phil March 10, 2009 at 9:09 am

Thank you. I’ve been wondering the same thing, though not because I’m interested in car loans and mortgage eligibility. These days insurance companies use it to figure my rates, and potential employers use it to0 (though I’ve never known why).

sarah March 10, 2009 at 11:55 am

I thought it had more to do with the balance the random day the credit reporting agency checks the balance of your account in a given month, not the actual billing amount. Is there a way to verify or check that?

Now, granted, not much of a difference for the person who only uses it for one purchase a month – you’re safer to wait until the billing statement to ensure that you have a balance when the monthly report is pulled.

However, in my case, I was recently dinged (not much, but still) on my credit score for using too much of my available balance. I had paid a term’s tuition on a card to get the cash rewards, so for a few days the balance was roughly 60% of the available credit. I made a large payment, and the billing statement showed an amount roughly 15% of the total available credit.

The billing statment has not exceeded 20% of the available credit for the past year, and I have never paid a penny of interest on the account.

We use the card for most daily purchases and pay it off in full each month. This has worked great and earned us several hundred dollars cash back each year from the card rewards. I have learned to be careful though to immediately pay off large balances and pray that it doesn’t get checked the day or two the balance is there.

David March 10, 2009 at 8:24 pm

Reading a Long time, First comment.
Credit balance is reported on a “random” day. You may be able to obtain that information by calling the credit company and asking them which bureaus they report to (some only report to two of the three) and on which days, then you can use the card a few days before and pay it a few days after. I was also able to increase 2 out of 5 credit limits just by asking while I was on the phone.

mrsmicah March 10, 2009 at 8:46 pm

@sarah, absolutely right. Because it’s supposedly a random day, I believe it’s safest to keep it on there until you know it must have been reported. Unless, as in your case, you’re worried about having a large used-to-available ratio.

And that’s an important point to bring up–the ratio of credit used to credit available has an impact on your score. And the less credit you have available, the more it lowers your score. So using the card to pay just one bill may make your score higher than if you did your monthly spending on it. It may not be a huge ding, but if you’re starting from no history or a bad history it’s probably more important.

@David, that’s a great plan. Is it a consistent date or number of days into the billing cycle for you? I’d assumed that since billing cycles are always shifting it wouldn’t be something predictable. But I suppose if they’re reporting to the credit reporting agency, then they might work on sane schedules that are month-based instead of 25 days or whatever yours is.

mrsmicah March 10, 2009 at 8:49 pm

@Phil, I think employers are interested in what kind of character you have…and that’s one place where society gives you a number and says “we trust you X much.” It’s not necessarily a dependable number, but companies like things they can quantify about a person.

On the plus side, having a lower credit score may make a company want to higher you because they think you really need the job and won’t press for as high a salary, whatnot.

Roger March 11, 2009 at 12:25 am

Thank goodness you don’t need to carry a balance to get a good credit score; I’ve managed to develop a great credit score even while always paying off my cards in full each month.

I do like the comment about not feeling bad for paying off the debt in full each month; given some of the credit card companies’ practices, I don’t feel bad at all about giving them as little money as humanly possible.

mrsmicah March 19, 2009 at 7:12 pm

Note: I removed a comment from a commenter who was misinformed about when credit card companies start charging interest. I’ve sent the commenter an e-mail which I hope will help him understand that they only charge the interest if you don’t pay off the bill.

I just wanted to note this because I don’t normally delete comments, this one was just factually inaccurate and might have confused readers. I stand by what was said in the article based on reading, personal experience, and pretty much every other article out there on using credit cards without paying interest.

Roger March 19, 2009 at 10:52 pm

Ah, okay, Mrs. Micah. I saw the comment in question (it ended up being mailed out to me, even if it wasn’t posted) and was going to correct the commentator’s errors myself. I’m glad that you caught him, though; he did seem to have a thorough misunderstanding of how credit cards evaluate interest on their users.

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