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Myth that paying debt over time helps credit?

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Horseshoez
Senior Contributor

Re: Myth that paying debt over time helps credit?


@Anonymous wrote:

@iced wrote:

The one possible exception I see to this is the very occasional card user, though I'm not sure they exist anymore. Does anyone really go a month without swiping, inserting, or tapping a card somewhere anymore? Even as a PIF'er, I find it nearly impossble to not have at least 2 cards report a balance each month, and I only need one to keep my score happy.


This I definitely agree with.  I work in the restaurant industry and the amount of CC transactions today compared to 20 or even 10 years ago is obnoxious.  A decade ago it was close to 50/50, where currently we typically land around 85% of our transactions being on cards. 


I'd be curious to know what percentage of swipes are Debit Cards vs. Credit Cards.  Prior to having my former business partner obtain and use a HUGE amount of credit in my name, I used my credit cards for everything, and then suddenly that was all over (this was long before I filed for Chapter 13).  Instead, I switched to a debit card only lifestyle and lived that way until my discharge last year.

 

One interesting observation I've made between "then" and "now" is, back then, there were few "rewards" available on credit cards (my AMEX Platinum was a penny per dollar as an example), however, there were places which encouraged you to use debit cards via various kick backs and promos.  Now rewards credit cards are the name of the game, and I'm able to play it for the first time.  Smiley Happy

I categorically refuse to do AZEO!
Message 11 of 19
iced
Valued Contributor

Re: Myth that paying debt over time helps credit?


@Brian_Earl_Spilner wrote:


The difference is someone on these forums vs someone that doesn't know they can let a balance report and then pay it off before interest hits. The average person just charges a large amount and pays every month.


Sure, but in this case the average person wouldn't be impacted by score hits for no balances.

 

It seems it would be the person who's actively trying to improve their score, pays off all their debt, then wonders why the score dropped. If these articles said something along the lines of "pay off your debt, but only pay off statement balances" or something to the effect that balances good as long as they're paid off and don't leave a $0 balance would work.

 

My point is that trying to clear up reported vs carried balances would probably muddy the waters further for most people. Then again, they'll probably have PIF-related questions now, too.

Message 12 of 19
Remedios
Credit Mentor

Re: Myth that paying debt over time helps credit?

Well I think it's because majority of people use credit cards as originally intended (by lenders) ..as loans with less than favorable terms. 

 

Rewards on credit cards in their current itineration are relatively new(ish) concept, and rewards/perks are why most of us use credit cards almost exclusively. 

 

If rewards were completely out of the picture, one would not even need to use credit cards unless they were really concerned about possible fraud with their checking accounts. 

 

So to someone who isn't chasing rewards, the only obvious purpose for CC is either use it as a loan, or let it sit till you need a loan. 

 

As far as scores and general public, I don't know how many of them keep track. 

I am profoundly uncomfortable with mentioning money, credits cards, scores and reports with people I do not  cohabitate with, so I don't know what the prevalence is, but I doubt majority of people know what their scores are till they actually apply, and from there it either goes into pleasant surprise or rude awakening. 

 

I've never even read an article that doesn't specifically state keep your balances under 30%, indirectly implying everything below that is peachy and deserves "yay you!" which we know from scoring perspective is very far from ideal. 

And in the end, all those articles end up trying to collect referral fee. 

 

 

Message 13 of 19
KatSoDak
Frequent Contributor

Re: Myth that paying debt over time helps credit?

I remember a post that mentioned their mortgage lender told them to charge something then pay it off over time in order to increase their FICO score.

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Message 14 of 19
4sallypat
Valued Contributor

Re: Myth that paying debt over time helps credit?

My mortgage broker trying to get us a home loan said to pay down certain revolving card accounts as much as possible.

 

He said, not to worry about: store branded accounts, Synchrony, and Comenity cards.

 

So I followed his advice and paid off most of the revolvers (Chase, Citi, US Bank, Barclays) and my utilization went from 35% to 12% with corresponding scores in the low-mid 700s now.

 

Have to say, some mortgage brokers know how to pump up scores!

Message 15 of 19
Anonymous
Not applicable

Re: Myth that paying debt over time helps credit?

Leaving higher balances on those store cards relative to the major bank cards to my knowledge results in no Fico scoring gain compared to if you were to pay off the balances on the store cards and leave them on the major bank cards.  That's assuming utilization percentages in both examples changed identically.  Basically, the type of card as far as I know doesn't matter when it comes to this metric.

Message 16 of 19
Anonymous
Not applicable

Re: Myth that paying debt over time helps credit?


@Brian_Earl_Spilner wrote:

People believe that showing use, building a history, and making payments every month is what you're supposed to do. People just aren't informed.


That's exactly what I used to understand to do. That THAT was what was valued. Perhaps more with the lenders, that doing so was RB Relationship Building, demonstrating a track record of 6 payments 💰 On Time was necessary. I think I gleaned that (erroneously) more about the Buy Now, Pay Later places... I know I definitely saw an ad or citation about how having FreshStart with FH FingerHut and making payments over 6 months raised your score 35 points. (Usually,  something like that...). 

And in my dedicated couplah weeks here, reading, reading, reading, Inoe learned that carrying a balance with my 2 like that was a slight ding on my credit because they contributed to my Aggregate Utilization being 16-29%. And that each of them made 3 of my Individual Utilizations high. I've paid off both and am waiting for those to update at my reports and those small improvements to reflect in my score. They may only give me a few points, and I'll take 'em. 👊🏻

Excellent point. 

Message 17 of 19
Anonymous
Not applicable

Re: Myth that paying debt over time helps credit?

"...around 85% of our transactions being on cards. "

 

@Anonymous I'm curious if you can break that down further, into what percentage of that 85% is credit vs. debt cards?  Completely anecdotal, but it seems I see far more debit cards in use when out and about than credit, and curious if that perception matches reality from the experience of a business owner.

Other than at an ATM for cash, I don't think I've used a debit in at least a decade.

Message 18 of 19
Anonymous
Not applicable

Re: Myth that paying debt over time helps credit?

I don't know of any easy way to decipher between them.  The transactions are just broken down by processing network, which doesn't say much.

Message 19 of 19
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