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Clarification on latest 'Ask myFICO' article re: revolving credit


Clarification on latest 'Ask myFICO' article re: revolving credit

There was a statement I don't understand in the latest "Ask myFICO", which said:

"Receiving credit card bills that you can't pay off can leave you stuck with paying interest on the balances. This is not only money wasted on interest, it's also probably hurting your FICO® score - particularly if you don't typically carry balances on your credit cards. This year, try to budget so that you only charge what you feel comfortable that you can pay off the following month."

I normally pay off all my credit cards each month. The last time I got a FICO score I was told I was dinged because I never carried a balance, and that every once in a while I should incur a balance for a few months and then my FICO score would rise. But this statement from the newsletter seems to claim that if you carry a balance, this will negatively affect your credit score, especially if you are not in the habit of carrying a balance. I am now confused: Should I or should I not occasionally carry a balance to improve my FICO score? Why is it that carrying a balance at all will "probably" hurt your FICO score? Please explain.
Message 1 of 3
Moderator Emeritus

Re: Clarification on latest 'Ask myFICO' article re: revolving credit

"Pay off the following month" is the key part here.

If have 1000 limit and use 100 a week on it-
The CC company will report $400 - and you pay it off accruing no interest. However this is reporting 40% utl that will hurt your score.

My advise-
PIF but let the cc company report a balance under 10% of your CL.

Use your credit cards- don't pay interest.
Message 2 of 3
Moderator Emeritus

Re: Clarification on latest 'Ask myFICO' article re: revolving credit

First, you need to know when each CCC reports your balance to the CRAs.  Some report on the statement date (so you will have a balance if you have charged anything during the bililng cycle).  Some report just after the due date (so you will have a zero balance if you paid in full on time). 
However, there is no such thing as historical utilization.  You could theoretically max your cards each month, and then pay everything off a few months before you apply for your mortgage.  Your score would not be harmed by the high use of your CLs.
So, to make a short story long, it doesn't make any sense (from a financial or credit perspective) to ever carry a balance unless you are at mortgage time and doing some absolute fine tuning.
Bartender, bring another round of FICOtinis please!

9.4.2011: TU 805. EQ 815.
Message 3 of 3
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