Dear YOUNG MONEY,
A friend of mine told me that it doesn’t help one’s credit history if you always pay off your credit card bills monthly. Is that true? I’ve always paid them off and think it should help my credit score more than carrying a balance. Do credit card companies prefer when you only pay a part of your monthly bills so that they can profit off the interest rates? Does this help your credit history?
It turns out that you’re both partially right. Credit bureaus score you higher when you pay your credit card bills regularly even if you don’t pay the balance in full each month.
You can maintain a good credit score as long as you pay at least the monthly minimum. However, your score will eventually be lowered if you owe too much money or have too many open credit lines even if you’re still making regular payments. Credit bureaus don’t like to see people with large credit card debt because it makes them a greater risk for a loan.
Credit card companies do prefer to see you carry a monthly balance because they make more money on their interest charges. However, your credit score has nothing to do with how much profit your credit card company is making off you. You’re doing the right thing by paying off your monthly credit card balance in full whenever possible. You’ll avoid paying high interest charges and your credit score should stay just as high, if not higher, than your friend’s score.
Please note that recent consumer privacy legislation – the so-called "FACTA" law – guarantees consumers one free credit report each year, upon request, from each of the three major credit bureaus: Equifax, Experian and TransUnion.
Consumers can request their free reports via the Web (AnnualCreditReport.com), toll-free telephone (1-877-322-8228) or mail (Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281). Do not directly contact the credit bureaus to obtain these federally mandated reports.
More helpful information on credit management.
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