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Loan officer says to keep a small balance on my credit cards to raise my score.

Member

Loan officer says to keep a small balance on my credit cards to raise my score.

I am trying to raise my credit scores to possibly get a USDA Rural Development loan for my first home. The loan officer I am going through said that I should charge $50 on all my credit cards, then pay the minimum, because she said it's good to show the credit bureaus that I can handle a balance.

 

Is it true that having a small balance does raise credit scores?

 

I have been reading info that says it does work, and info that says that's a myth.

 

Can you explain in easy/laymen's terms how/when to pay off the minimum balance (or the full amount) so it always shows the credit bureaus that I have a balance? What are your tips/tricks/advice?

 

I read that it's better to pay after the balance has been reported to the credit bureaus, but before the due date. And, of course I know already, that paying it off in full before the due date is best, to not incur interest.

20 REPLIES
Established Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

First, you might want to check out the Rebuilding section .... lots of great information there. 

 

Here's what you'll hear over there. 

 

To maximize your FICO scores, you want to have at least three revolving trade lines ... ie, credit cards. Me personally, I have a Cap 1 unsecured card, a Discover secured card, and an Overstock card. With those cards, you want to show a zero balance on two of the three, and a balance of no more than 9% of your total available credit. 

 

For example, you have three cards. Each has a $1000 credit limit, so your available credit is $3,000. When the statement cuts on your cards, you'll want two of those cards to show a zero balance. On the last card, you want to report NO MORE than $270 on your statement, which reflects 9% of your total available credit. (as an aside, it would be even better if you showed only a 9 percent balance on your last card, so a $90 balance instead of a $270 -- that will net the MOST points, but that's not absoltutely needed until you're trying to maximize your points -- like when you apply for your mortgage)

 

Here's what I do. My statements are cut like this: 

Capital One - the 2nd of the month

Overstock - the 9th of the month

Discover - the 20th of the month

 

So let's say, my cards reflect the same limits in the example above. 

On the 1st of the month, I want my Capital One card to show NO MORE than a $270 balance. 

On the 8th of the month, I want my Overstock card to show a zero balance. 

On the 19th of the month, I want my Discover card to show a zero balance. 

 

Then, after the Capital One statement cuts on the 2nd, I want to pay off the $270 balance. The way I have my budget set up, I immediately pay off the balance when I get paid on the 5th of the month. That way I know two things ... one, I won't incur any interest charges, but two, and most importantly, I will ensure my monthly payment is MADE. Can't stress that enough ... you MUST make your payments on time, every month, especially if you want to get a mortgage. 

 

Now, all that said, that's not to say you can't USE all the cards. In fact I generally use my Discover card every month as well. The way I use it, I have at least two bills that are due immediately after my statement date, total is $40. Sometimes I'll put gas on it too, HOWEVER, every month, before the statement cuts on the 20th, I pay it off in full, so that it reports a zero balance. 

 

This accomplishes two things ... one, you use the card, which keeps the card grantor happy and ideally leads to credit line increases. Two, you're making monthly payments, even if you're not paying it after the statement reports a balance. 

 

Last month I needed a pair of hiking shoes, so I bought a pair on Overstock, and just paid it off before the staement cuts. 

 

 

My final advice:

 

Get and stay organized ... you have to know your budget, when you have income coming in, what is going out to pay bills, etc.

NEVER NEVER NEVER miss a payment ... especially if you have your eyes on a mortgage. I cannot stress that enough. Having a year of on time payments on your credit report will show a nice score improvement and make your loan officer happy. 

Don't use your card to pay for things you cannot afford. My rule is, if I can't pay it off before I would incur interest charges, I can't put it on my card. 

Don't apply/get cards you don't need. 

And NO applying for new credit six months before you apply for a mortgage. 

 

Hope this helps Smiley Happy 

Message 2 of 21
Super Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


letsclique wrote:

I am trying to raise my credit scores to possibly get a USDA Rural Development loan for my first home. The loan officer I am going through said that I should charge $50 on all my credit cards, then pay the minimum, because she said it's good to show the credit bureaus that I can handle a balance.

 

Is it true that having a small balance does raise credit scores?

 

I have been reading info that says it does work, and info that says that's a myth.

 

Can you explain in easy/laymen's terms how/when to pay off the minimum balance (or the full amount) so it always shows the credit bureaus that I have a balance? What are your tips/tricks/advice?

 

I read that it's better to pay after the balance has been reported to the credit bureaus, but before the due date. And, of course I know already, that paying it off in full before the due date is best, to not incur interest.


As far as raising your credit scores:

 

1. Optimal credit card utilization would be reached at all cards but one reporting a zero statement balance, with one card reporting a small balance.

2. Carrying a balance does not improve your score in any way.

 

FICO8 EQ 721 TU 772 EX 777 Total revolving credit 500k
Message 3 of 21
Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

I think there may be a misunderstanding with your loanofficer. You don't actually have to carry a balance, you just want one card to REPORT a balance. Once that gets reported, usually a few days after the statement cuts, you can pay that in full to avoid interest. It will still show on the reports as a current balance,and reflect the usage that the loan officer is talking about.

 

Then, before the next statement cuts, be sure to leave a little on there to get reported.

 

For example: I use one of my cards almost exclusively for groceries, and I pay it off once a week with the exception of $100.

 

So, statement cuts with $100.

Over the next two weeks I buy groceries and spend $54 each week and immediately pay it off.

Since payments are applied to statement balance first, the first week my balance due drops to $46 once I post the the $54  payment for that week., The week after that I am free and clear because my payments exceed the statement balance even though my card balance still shows $100.

 

That to me, is the ideal way to go. You are maximizing benefit by letting a balance report, but  still paying it in full without doing anything more than what you normally would

Message 4 of 21
Member

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


jjking54 wrote:

First, you might want to check out the Rebuilding section .... lots of great information there. 

 

Here's what you'll hear over there. 

 

To maximize your FICO scores, you want to have at least three revolving trade lines ... ie, credit cards. Me personally, I have a Cap 1 unsecured card, a Discover secured card, and an Overstock card. With those cards, you want to show a zero balance on two of the three, and a balance of no more than 9% of your total available credit. 

 

For example, you have three cards. Each has a $1000 credit limit, so your available credit is $3,000. When the statement cuts on your cards, you'll want two of those cards to show a zero balance. On the last card, you want to report NO MORE than $270 on your statement, which reflects 9% of your total available credit. (as an aside, it would be even better if you showed only a 9 percent balance on your last card, so a $90 balance instead of a $270 -- that will net the MOST points, but that's not absoltutely needed until you're trying to maximize your points -- like when you apply for your mortgage)

 

Here's what I do. My statements are cut like this: 

Capital One - the 2nd of the month

Overstock - the 9th of the month

Discover - the 20th of the month

 

So let's say, my cards reflect the same limits in the example above. 

On the 1st of the month, I want my Capital One card to show NO MORE than a $270 balance. 

On the 8th of the month, I want my Overstock card to show a zero balance. 

On the 19th of the month, I want my Discover card to show a zero balance. 

 

Then, after the Capital One statement cuts on the 2nd, I want to pay off the $270 balance. The way I have my budget set up, I immediately pay off the balance when I get paid on the 5th of the month. That way I know two things ... one, I won't incur any interest charges, but two, and most importantly, I will ensure my monthly payment is MADE. Can't stress that enough ... you MUST make your payments on time, every month, especially if you want to get a mortgage. 

 

Now, all that said, that's not to say you can't USE all the cards. In fact I generally use my Discover card every month as well. The way I use it, I have at least two bills that are due immediately after my statement date, total is $40. Sometimes I'll put gas on it too, HOWEVER, every month, before the statement cuts on the 20th, I pay it off in full, so that it reports a zero balance. 

 

This accomplishes two things ... one, you use the card, which keeps the card grantor happy and ideally leads to credit line increases. Two, you're making monthly payments, even if you're not paying it after the statement reports a balance. 

 

Last month I needed a pair of hiking shoes, so I bought a pair on Overstock, and just paid it off before the staement cuts. 

 

 

My final advice:

 

Get and stay organized ... you have to know your budget, when you have income coming in, what is going out to pay bills, etc.

NEVER NEVER NEVER miss a payment ... especially if you have your eyes on a mortgage. I cannot stress that enough. Having a year of on time payments on your credit report will show a nice score improvement and make your loan officer happy. 

Don't use your card to pay for things you cannot afford. My rule is, if I can't pay it off before I would incur interest charges, I can't put it on my card. 

Don't apply/get cards you don't need. 

And NO applying for new credit six months before you apply for a mortgage. 

 

Hope this helps Smiley Happy 


Thanks for the help! Do you know of any spreadsheets that might help me with this, or something else you use to track your budget?

 

I keep a Desktop Sticky Note of all my bills, and due dates, and I use Mint too.

Message 5 of 21
Member

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

Thank you.


SouthJamaica wrote:

letsclique wrote:

I am trying to raise my credit scores to possibly get a USDA Rural Development loan for my first home. The loan officer I am going through said that I should charge $50 on all my credit cards, then pay the minimum, because she said it's good to show the credit bureaus that I can handle a balance.

 

Is it true that having a small balance does raise credit scores?

 

I have been reading info that says it does work, and info that says that's a myth.

 

Can you explain in easy/laymen's terms how/when to pay off the minimum balance (or the full amount) so it always shows the credit bureaus that I have a balance? What are your tips/tricks/advice?

 

I read that it's better to pay after the balance has been reported to the credit bureaus, but before the due date. And, of course I know already, that paying it off in full before the due date is best, to not incur interest.


As far as raising your credit scores:

 

1. Optimal credit card utilization would be reached at all cards but one reporting a zero statement balance, with one card reporting a small balance.

2. Carrying a balance does not improve your score in any way.

 


Thanks for the help.

Message 6 of 21
Member

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


letsclique wrote:

Thank you.


SouthJamaica wrote:

letsclique wrote:

I am trying to raise my credit scores to possibly get a USDA Rural Development loan for my first home. The loan officer I am going through said that I should charge $50 on all my credit cards, then pay the minimum, because she said it's good to show the credit bureaus that I can handle a balance.

 

Is it true that having a small balance does raise credit scores?

 

I have been reading info that says it does work, and info that says that's a myth.

 

Can you explain in easy/laymen's terms how/when to pay off the minimum balance (or the full amount) so it always shows the credit bureaus that I have a balance? What are your tips/tricks/advice?

 

I read that it's better to pay after the balance has been reported to the credit bureaus, but before the due date. And, of course I know already, that paying it off in full before the due date is best, to not incur interest.


As far as raising your credit scores:

 

1. Optimal credit card utilization would be reached at all cards but one reporting a zero statement balance, with one card reporting a small balance.

2. Carrying a balance does not improve your score in any way.

 


Thanks for the help.


Do you mean "Optimal credit card utilization will be reached by one card reporting a zero balance, with one card reporting a small balance"?

Message 7 of 21
Super Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


letsclique wrote:

letsclique wrote:

Thank you.


SouthJamaica wrote:

letsclique wrote:

I am trying to raise my credit scores to possibly get a USDA Rural Development loan for my first home. The loan officer I am going through said that I should charge $50 on all my credit cards, then pay the minimum, because she said it's good to show the credit bureaus that I can handle a balance.

 

Is it true that having a small balance does raise credit scores?

 

I have been reading info that says it does work, and info that says that's a myth.

 

Can you explain in easy/laymen's terms how/when to pay off the minimum balance (or the full amount) so it always shows the credit bureaus that I have a balance? What are your tips/tricks/advice?

 

I read that it's better to pay after the balance has been reported to the credit bureaus, but before the due date. And, of course I know already, that paying it off in full before the due date is best, to not incur interest.


As far as raising your credit scores:

 

1. Optimal credit card utilization would be reached at all cards but one reporting a zero statement balance, with one card reporting a small balance.

2. Carrying a balance does not improve your score in any way.

 


Thanks for the help.


Do you mean "Optimal credit card utilization will be reached by one card reporting a zero balance, with one card reporting a small balance"?


Only if you only have 2 cards. Otherwise I mean having all but one reporting at zero, with only one reporting a small balance. E.g. if you have 5 cards, let 4 report 0.

FICO8 EQ 721 TU 772 EX 777 Total revolving credit 500k
Message 8 of 21
Member

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

Thank you. 

Message 9 of 21
Member

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

I think that might be why my scores has started to level off. Because I was paying the minimum payment, but carrying the remaining balance.

Message 10 of 21