Is it good to carry a small balance on a credit card, instead of zero?

[Anonymous]

A different post alluded to the advice to carry a very small balance on all of your credit cards, because this will raise your FICO score. I never actually saw the advice they were referring to - can anyone tell me if I got the right message, and if so, why/how it works?

Thanks!

[Anonymous]

Carrying a balance only makes financial sense if you pay in full (PIF) each month.

Example:

You charge $40 for gas on 4/15.  Your statement closes 4/25.   You get your bill on 4/30 and pay it on 5/5.  

The CCC will report the $40 to the CRA's on or about your statement date (4/25), so you would be considered "carrying a balance", but you would not incur interest charges as you PIF.  That is ideal.    But only do this on less than half of your tradelines in order to maximize your score.

If money is not so tight that you can PIF, then do so.   Needlessly incurring interest charges makes no sense and does NOT improve your FICO score.

[Junejer]

Boscoe, I agree mostly with what you said. Disagree with having to pay interest just b/c you allow a balance to report. There is a difference between allowing a balance to report and carrying a balance. I allow a small balance to report on one of my CCs, but I PIF every month. A few days before the statement cuts, I pay the balance down to a low uti (4% this month) and allow that to report. Then when the statement comes, I PIF on or before the due date. Total interest paid to the CCC = $0.

[Anonymous]

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@Anonymous wrote:

Carrying a balance only makes financial sense if you pay in full (PIF) each month.

Example:

You charge $40 for gas on 4/15. Your statement closes 4/25. You get your bill on 4/30 and pay it on 5/5.

The CCC will report the $40 to the CRA's on or about your statement date (4/25), so you would be considered "carrying a balance", but you would not incur interest charges as you PIF. That is ideal. But only do this on less than half of your tradelines in order to maximize your score.

If money is not so tight that you can PIF, then do so. Needlessly incurring interest charges makes no sense and does NOT improve your FICO score.

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ace9848, I don't know how this post could get misunderstood, but did it help answer your question?

Boscoe said it well, and did not suggest carrying a balance to the point of incurring an interest charge.

The, or for the sake of all the disagreeing sure to follow any breath I take around here, MY rule of thumb equates to the following (shall I add ROUGHLY):

Keep 60% of the total number of credit card accounts you have, reporting a zero balance.
Let the remaining 40% report a balance, but not more than 9% of the credit limit of each credit card, respectively. I say it like this because many folks have over a dozen credit card accounts, maybe over 20 even. To each his own, or hers, whatever, I couldn't care less, please argue and take offense to every other word (at least) I write. lol, not YOU ace, but anyone!

Once a given card reports a balance TO THE CREDIT BUREAUS (this reporting date occurs 90% or better at the statement closing data of each and every card), you can avoid any interest charges by paying the balance in full. As in by the due date. As in pay the balance, in full, within the grace period.

The gist of why this is worth doing is that it shows (in some demented way - since what's the difference if I PIF BEFORE the closing date - or PIF after the closing date - I still charged something and paid it off DUHHHH) the FICO system that you're using the credit available to you, in a responsible way. I suppose by carrying a 9% uti past the closing date is just what they want to see to prove you're using and using responsibly, the credit available to you. Or at least that's how the numbers are set up to judge that sort of thing. In any case it's the way it is.

It's thought of by some as a GAME. Personally I have played this game a bit, and I have also just paid everything in full before closing dates. I'm typically just paying bills, and personally don't see all the excitement in playing the game. But if you're trying to tick up your FICO score for all you can with an arena or revolving credit cards, then that's how it's done. After all if you're playing that game, you're safer than the other extreme which is a maxed out credit situation.

Also, you should mix up what cards you're using to play this game with. If possible, use every card, every month, and PIF (BEFORE THE CLOSING DATES ON THOSE CARDS) the 60% you're going to have report a zero balance. Alternate which cards will show a balance. By golly, show FICO that you're not scared to use all your credit lines. LOL

Not sure why I chimed in with my warped thoughts. It just seemed like your question was answered, and then misunderstood.

Maybe this whole forum thing as it relates to this issue, parallels to a bunch of garage heads taking about how to tune the finest of details out of their motors for what amounts to single digit gains in horsepower? I think a lot of people come around looking for immediate gains or changes in their scores, and bring impatience with them. Truth is the score is one thing by itself. To get real financing on real important things, you need real history. My point is that you need many years of payment history to prove your credit worth, to get realistic finance rates. Six months of sweating it over a small advance in your FICO score can amount to not much of anything. The FICO system is important, but stay realistic, don't kill yourself over it. If you do, don't expect to be rewarded for just building up your score. Patience are THE virtue when it comes to good credit, years of patience.

That's my understanding. Come all ye who shall disagree, you're expected. Know in advance that I doubt I'll bother to look back, much less reply on this one. Some of the posters around here are bitter wounds with keyboards, waiting to lash out their petty little inferiority complexes they developed from some credit card that they reached for and just got laughed at in their attempt.

[TheArcher]

As far as paying down the balance right before a statement generates, this doesn't always work for me. I've had (numerous times) one of my CCC report MORE than just once in a month. I've had mid month balances reported onto my credit reports before. I always PIF, but I'm just saying that for some strange reason my CCC will report a balance in the middle of the month between statements. It's Capital One that has done this.

Message Edited by TheArcher on 05-07-2008 07:57 AM

[Junejer]

Attain, if you have something to say directly to ME, then say it. OP was not misunderstood by me. You misunderstood my post. Looking at your posts and many others that you have posted, it seems you are the one with some sort of inferiority complex. I do just fine in the confidence department thanks. My suggestion was to be able to report a small balance and still PIF WITHOUT paying interest.

As for me, I am here to help others. I have never had any dealings with you in these forums, so why you picked me to start a fight with, I don't know, buy you picked the wrong guy. Why are you here attain?

You can now crawl back into your hole or your aunt's basement or wherever you came from.

[Anonymous]

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ByrdMan wrote:
Attain, if you have something to say directly to ME, then say it. OP was not misunderstood by me. You misunderstood my post. Looking at your posts and many others that you have posted, it seems you are the one with some sort of inferiority complex. I do just fine in the confidence department thanks. My suggestion was to be able to report a small balance and still PIF WITHOUT paying interest.

As for me, I am here to help others. I have never had any dealings with you in these forums, so why you picked me to start a fight with, I don't know, buy you picked the wrong guy. Why are you here attain?

You can now crawl back into your hole or your aunt's basement or wherever you came from.

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THE BYRDMAN HAS SPOKEN

[RobertEG]

I know, I know, the current wisdom offered on this site is that carrying 1-9% is better than 0%.  And I appreciate the obvious strong convictions by most on this point.  However, I have yet to see any hard comfirmation of this mantra.  I know that anecdotal experiences may be all we will ever get in answer to this unless FairIsaac chooses to post a definitive answer.  But, as far as I can tell, it still remains a hyothesis, and not a fact.

[Junejer]

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@RobertEG wrote:

I know, I know, the current wisdom offered on this site is that carrying 1-9% is better than 0%. And I appreciate the obvious strong convictions by most on this point. However, I have yet to see any hard comfirmation of this mantra. I know that anecdotal experiences may be all we will ever get in answer to this unless FairIsaac chooses to post a definitive answer. But, as far as I can tell, it still remains a hyothesis, and not a fact.

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Of course it's anecdotal. But if there are enough trials that come u with the same conclusion, it moves from hypothesis to theory. I have yet to hear anyone state it as fact. I don't think that we can state much of anything as fact in regards to FICO scoring.

[Anonymous]

Actual, ByrdMan, Attain was at least partially correct with what he said.

You mention above that you disagree with my part about paying interest charges.  NO!  I would never, and do not ever recommend anyone pay interest on credit cards - ever. 

I understand sometimes if a person is having cash flow issues that they may need to, but I would never recommend this if it can be avoided.

Make your purchases, make sure the balance gets reported, get your statement, then PIF.   Do this each month and watch your score go up (unless you are over 750, then increases get more difficult but also more unnecessary).