I have been told that it is wise for a first time user (college student) to leave a small balance on your credit card to build credit. For instance, I have a $1000.00 limit on a credit card; haven't come close to maxing it out; at most maybe $500.00 at one time. I have paid $450.00 (leaving a $50.00 balance) most months because I heard it was a good idea for someone just starting out to do so; in order to build my credit score. Any opinions? Thanks....

ZoomBoom

Credit scores will not increase if you have no previous credit and pay your card off monthly. Posheak is definately correct that you should not keep any long term balances on your card. The major credit report agencies suggest at least a 6 month running balance.

ScottGem

No one was advising the OP to keep large long term balances. My specific advice was to build a balance that could be paid off in three installments. The major disagreement was that keeping a small running balance for a short term to build a better credit rating was neither effective nor worth the cost. My position was that it was both.

RichardBondMan

I have read all the answers and tend to agree with ScottGem, if you need to build your credit, then leaving a small balance, in this case only $50.00, and paying it off say at $10.00 per month at say an annual percentage rate of 18 percent will cost the borrower in interest less than $3.50 approx over 5 or 6 months, a very small price to pay to build your credit. I do agree that cash is king but credit, managed wisely, is a good thing, and on the other hand, the wrong kind of debt is a bad thing. For example you buy a house for $100.000.00 and are granted a 30 year mortgage. Who has that much cash on hand at probably a fairly young age of say maybe 30, at age I might add, when most families are having children and driving to and from work, who need health and life insurance, daycare and other expenses. Answer for 98 percent is us is "not me", the other 2 percent either inherited it or are a young professional, ie medical doctor, hard working and fortunate entrepreneur or actor or professional athlete. The home will appreciate in value over time, the mortgage interest will be tax deductible. That home could later be passed to the next generation. That is good debt. Here is bad debt -- purchase a lawn tractor, an automobile, a big screen TV and finance it. And if you finance it for longer than it's useful life, then this is bad debt. If one doesnt need to build their credit, then, of course, pay the $50.00 balance off and all other interest bearing debts off and avoid the interest.

wildcatgirl

I am just catching this post and trying to understand something. I have a credit card which I pay off in full every month--I never carry a balance--just use it because it gives me rebates off my monthly statement. I am looking at a copy of my AUTO equifax credit report and my CBI mortgage credit report (in the car business, our credit reports look totally different than the ones mortgage companies pull--they are formatted a bit differently). Anyway, on my credit card line, all it shows on the AUTO report is 99 payments as agreed (I've had this card for quite a long time). On the mortgage side of it, all I see is a bunch of ones showing they were paid on time like transunion does. Well, my question is that if the report is only showing the payment history that the payments were received on time, and they don't show how much has been paid, how is that improving my score if the bureaus don't know if your financing any of your balance or not?

ScottGem

I subscribe to an equifax service that reports changes in my credit. If the balance of any account increases by 50% I get an e-mail notice. The point is that the bureaus do keep balance records, so they are reported and considered in your score.

wildcatgirl

But, technically, there is always a balance on my card even though I pay it off every month. If my statement is sent to me on the 15th so to speak, and I don't receive it until the 20th and pay it on the 25th, I have probably used it a few times in between the statement close date and the payment due date. So, even if I pay my statement in full on the 25th, if I check my balance the very next day, I still may have a $50 balance that won't hit until next month's statement plus any additional charges I've made by then. So, I'm still somewhat lost because even though you pay your credit card off in full, there still may be a balance from previous charges that will show on your account. Even better yet, my Equifax shows my available limit, but does not show a high credit amount on this particular account. So, does Equifax even know how much I have put on this card in a month?

wildcatgirl

There is a point I'm trying to make here. If you use a particular card all the time, it will always show a balance even if you pay your statement in full every month. Although I have never heard of the equifax service that Scott mentioned, I do know that most lenders only report to the credit bureau once a month. Some report twice, and some of your smaller lenders only report quarterly--especially if it is a small bank that your mortgage is with. Not to mention that some lenders only report to transunion whereas others will report to all three credit bureaus. In the area I live in, transunion is the most commonly used. Experian is hardly ever used in this area--so much in fact that my dealership doesn't even have an experian account to pull their bureaus. Out of the 18 lenders I use, only 2 look at experian-GMAC and Cap One. If you look at your credit, it shows the balance and a reported date of when that balance was sent to the credit bureau. As a matter of fact, sometimes lenders don't report to all the credit bureaus at the same time. I have seen point spreads as much as 100 points between equifax and transunion. This is usually because the equifax has reported some deliquency that has not shown up yet on transunion. Or, sometimes transunion has more credit lines reporting that are not showing up on equifax that give your credit report more depth such as student loans or personal loans that have been taken out with a small bank that only reports to transunion. As a matter of fact, one of my lenders used to only pull transunion, they have now switched to reading only equifax. The reason being that they stated if someone had a previous loan with them, transunion did not always report their pay history correctly. If they had late pays, they would only show up on equifax and were not on transunion.
The point I'm trying to get to is pay your credit cards. Pay them off in full to help keep yourself from getting into trouble and to avoid outlandish interest rates. The one thing that will help your credit more is installment credit. If you are paying on your first car loan, don't pay it off early. If you have only had a $5,000 previous car loan, I might be able to get you approved on a $10-15,000 car loan the next time around, but not $30,000. You have to build your credit and walk before you try to run. In the old days, you could get a Sears card for $500 and pay on it for about a year then turn around and buy a car the next. That's not the case anymore. GMAC has a first time buyers program. Out of the entire country in 2005, they only approved and funded contracts on 235 individuals. I know it's not easy and it does take a while to build really good credit, but it is worth it in the end and you'll be thanking yourself when you can walk into a bank and say "OK, what is the best rate you offer because I can qualify for the best!"

ScottGem

its been a while since I've looked at my credit report and each service has a different format. So some may list a balance as running, others just that a balance existed as of the last statement date. On the other hand, even if the report doesn't specify, the information reported probably does indicate and credit scores may come out differently because of it,