Building credit history – what’s best?

[Louella]

When building credit history, is it better to pay just the minimum required payments on my credit card and keep the balance on it, or to pay the statement in full? Thanks..

[Brandie]

Pay your statements in full

Paying your statements in full is the best way to build credit. In order to establish a good credit history you need to actually use credit. But using credit has nothing to do with carrying balance on your card.

Using credit just means using your card for purchases and than making your payments on time. As far as credit building goes – the dollar amount of the payments makes no difference.

You can use the card for a $10 purchase or for $200 purchases. You can pay the statement on full or just the minimum. It makes no difference. As long as you make timely payments – your building credit history.

However, carrying balance on your card has two downsides:

• You increase your credit balance-to-limit ration (utilization) and when you go over 35% you actually harm your credit score.
• You pay interest on the amount that you carry. This is a waste of money that doesn’t benefit your credit building

By paying your statements in full you avoid unnecessary interest payment, and enjoying the 0% grace period between the time of purchase and the statement due date.

Summery: Carrying balances on your card has nothing to do with credit building, and is a waste of money.

[Author]

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