Do You Need to Carry a Balance to Build Credit?
You do not need to carry a monthly balance or pay interest to build credit, as your utilization rate is determined by the statement balance reported to bureaus rather than revolving debt. A great way to maintain a healthy credit score is by paying off your credit card balance in full every month.
Transcript
ELLEN: One of the things I hear often is that you should carry a small balance on your card so that you can get to this magic 30% utilization rate. That is not a good idea. ELLEN: What you spend on your card, whether you’re revolving that balance from month to month, influences your utilization rate. ELLEN: There is no need to maintain a balance and pay interest in order to keep your credit score up. ELLEN: The credit card company’s only going to report once a month, typically after your payment is due. ELLEN: If you have a $1,000 credit limit and you spend $300 every month, then you will have 30% utilization. So when your credit card statement generates, you owe $300 on that $1,000 limit. ELLEN: That’s going to report to the bureaus as 30% utilization—even if you pay that off in its entirety the day after you get your statement. ELLEN: So there’s no need to pay interest in order to improve your credit score. Pay off your balance. That will help.
More in this series
Credit Invisibility: What It Means and How to Fix It
1:41
What Impacts Your Credit Score?
1:31
Does Taking Out a Loan Improve Your Credit?
1:09
How Credit Card Interest Works
1:07
Avoid Credit Card Interest Using the Grace Period
1:31
Fix Credit Report Errors and Dispute Inaccuracies
0:46
A New Way To Think About Your Credit Score
1:00
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