Editorial Policy

Carrying a balance does not boost your credit score

Erica Sandberg

December 10, 2015

QHi Erica,

I have four credit cards, but the only one I really use is my Chase Sapphire card because of the points. It has a limit of $5,000, and I have $800 on it now. Do you think I should pay it off or keep some of the balance on it to keep my credit score high? I checked my fees, and it was only $5.80 on purchases. That seems like a small amount to pay if it keeps everything good. Let me know what you think before I pay it off. — James

ADear James,

If you could ensure an amazing credit score for less than the cost of a sandwich, I might say, “Go for it — that's money well spent!” However, that's not the way credit scoring works. The truth is, you do not need to carry over balances and then pay extra to the credit issuer to establish an excellent rating. For this reason, my suggestion is, “Delete that debt!”Ask Erica

So we're on the same page, though, let's focus on the credit score that most lenders rely on to gauge risk. That's the FICO score, which starts at a low of 300 and goes up to 850. The five basic factors of a FICO score, in order of most to least important: payment history, credit utilization, length of credit history, types of credit in use and pursuit of new credit. That may seem like a lot to manage, but by focusing on the first three, you'll create and maintain the level of excellence you seek.

What is great news is that with four active accounts, you have all the necessary instruments you'll need to land a higher FICO score. Here's how:

  1. Charge with all of your cards. Credit scores only assess activity that appears on your credit reports, so you have to actively add data to them. That means borrowing and repaying regularly. Go ahead and use the Sapphire card for those valuable rewards points, but also charge occasionally with the others to keep them alive. If you don't use the cards you have, you run the risk of the issuer closing the card due to inactivity, which could increase your overall credit utilization ratio (if you are carrying any balances) by losing that credit line as well as  reduce the length of your credit history (especially if one of those cards is one of your oldest).
  2. Send payments on time. This is simple but vital. Pay attention to due dates and never pay late. You may even want to set up automatic payments with your creditors, which will ensure your payments arrive on time. Then you'll just need to make sure your checking account has enough funds to cover the payments.
  3. Pay in full. Credit utilization is the ratio of how much you owe in relation to the amount you can contractually borrow (your credit line). Zero debt is ideal. Not a little; none at all. However, since the balance may be recorded before you have the chance to get your entire payment in, you may want to pay what you owe well in advance of the due date. This way you can guarantee that when your FICO score is calculated it will be based on accuracy — that you do not want to carry a debt over from one month to the next.

Check your FICO scores now and again after six months. With the above strategy, you should see improvement. Note that FICO scores in the mid-700s are in the top scoring category, so try not to spend too much time or energy reaching the ceiling. It won't give you anything but a warm, fuzzy feeling that you're No. 1 — which you would then have to continue to uphold. Remember, credit cards should make your life easier, not more stressful.

Got a question for Erica? Send her an email.

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