Credit card for Building Credit

How You Should Really Use Your Credit Cards

There is a common misconception about carrying a balance on your credit cards. Some people think you have to in order to show you can make payments, however that is not the case. The only thing carrying a balance does is accumulate interest and cost you money. It is always advised to pay your credit cards off each month, but there is more to it than just that.

If you have read How Are Credit Scores Calculated you know that 35% of your credit score comes creditcardsfrom a positive payment history and 30% comes from credit usage. A positive payment history simply means you make all of your payments on time. This can be the minimum, or the full balance. As long as the payment is on time you have a positive history. It is always suggested to set up an automatic payment for your minimum just in case you get busy, are traveling, or don’t get a statement. By doing that you will always have an on time payment.

The real lesson from this post is about usage though. Think of 30% as the theme. 30% of your credit score is based on your balances being under 30% of your limit. The limit on your credit card is less important than the percentage of usage. For example, a credit card with a $300 limit and $60 balance is going to be more beneficial than a $3000 limit and a $1000 balance. The smaller card is under the 30% usage and providing you with the higher positive status providing it has never had a late payment.

In short, paying off your balances each month is OK. It is what you should strive for to avoid paying interest charges. Carrying a balance is also OK, but make sure you are staying under 30%, or get there quickly if you are looking to move forward with financing a major purchase and need to maximize your credit scores.

Michael ClarkHow You Should Really Use Your Credit Cards

Leave a Reply