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Credit Card Myth: Paying Your Balance Each Month Increases Your Credit Score
One of the myths that has grown up around credit card debt is that paying your credit card bills in full each month will help your credit score. While paying on time will help you maintain a good score, and keeping debt low can help your score, actually paying the balance off each month doesn’t really affect your credit card history. Paying off your credit card debt with a plan, and over time, can actually be a big help to your credit score.
Managing Your Credit Card Debt: Make a Plan
One of the best things you can do is make a plan to pay off your credit card bills over time. Making regular payments, on time, will increase your credit score. If you buy an item for $800 (perhaps for the rewards points), paying the full balance off won’t do much for your credit score. However, if you make two payments of $400 each — on time — for two months, or payments of $267 for three months, you will be more likely to see a change in your credit score.
Two of the most important items for your credit score are:
- Whether you make your payments on time.
- How much of your available credit you are using.
As you can see, whether you pay off your monthly credit card balance is not vital. The important thing is that you pay on time, and that you use a small percentage (10-20 percent) of your available credit. So, if you have three credit cards with a total of $12,000 in credit limits, you only want to have $1,200-$2,400 in combined balances at any one time.
Making purchases with a student credit card, and then taking two or three months to pay them off, is a good way to keep your credit score on the rise. However, this approach requires discipline to ensure that you are never using more than 20 percent of the credit available to you.
