[fishwaterjohn]

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 to do so; in order to build my credit score. Any opinions? Thanks...

[ScottGem]

Its not a bad idea to pay off balances over time. To build a credit record. If charge $500, pay it in 3 installments. Leaving a balance isn't what does it, but showing that you pay on time over time will help.

[Fr_Chuck]

Yes while I so hate credit cards and normally advice people don't use them. Go to a local bank and borrow 300 dollars and pay them back over so many months ( put the money in a savings account and use to pay back, it builds up creidt also.

Credit cards are so easy to get you into trouble.

But you would need to charge a few hundred dollars and pay off over a year or so to be best for credit.

But please, please be careful with it

[CaptainForest]

I disagree with this.

Yes, taking out loans is a wonderful thing, but you do not need it.

You are wasting YOUR money by paying interest.

So many people get into credit card trouble. The best way to deal with it is to ALWAYS PAY OFF THA BALANCE IN FULL.

The fact that you pay the balance off every month, WILL help your credit.

So, stop leaving $50 on your credit card and pay your balance off completely every month.

[ScottGem]

The problem here is that sometimes its impossible to pay in full. One need to have a credit history to purchase a home, a car and some other big ticket items. Using credit is not a bad thing is its managed right. To pay a few dollars of interest to build that credit rating is generally worth it.

[dxviii]

I am no expert but if I recall correctly some creditors look to see if you have a running balance.

[posheak]

Bad advice. Want good advice? Here it is:
Pay off your credit card in full every month. Never carry a balance. Thus you will never be paying interest; you will maintain a supurb credit record; you will sleep soundly at night. Be the only one in your generation not to run up a huge irresponsible debt!!

Never leave a balance. Even leaving a penny balance will cause interest to be charged on the total amount. I have paid my balance off entirely my entire life and have a credit score over 800.

[ScottGem]

Bad advice. Want good advice? Here it is:
Pay off your credit card in full every month. Never carry a balance. Thus you will never be paying interest; you will maintain a supurb credit record; you will sleep soundly at night. Be the only one in your generation not to run up a huge irresponsible debt!!!

Never leave a balance. Even leaving a penny balance will cause interest to be charged on the total amount. I have paid my balance off entirely my entire life and have a credit score over 800.

Do you have a mortgage? Have you ever had car loans? Have you ever had other loans? How long have you had credit cards? All those things factor into your credit score. Paying your card balances in full each month is probably NOT the reason for your high credit score.

I agree with you that its wrong to run up "huge irresponsible debt". But there is nothing wrong with using credit responsibly. Nor is the anything wrong with paying a little interest to help build a credit score that will help you get a lower interest mortgage or car loan. Spending a little now to build your rating may pay off dividends when it comes time to get those major loans.

[posheak]

It is not a good idea. Just having a credit card in good standing is good for your credit history. You are paying exorbitant interest on the balance unnecessarily. This is an urban myth - don't fall for it. If some one checks your credit it will list the credit card and the limit. It will show arrears if you missed the date or payment.

[ScottGem]

It is not a good idea. Just having a credit card in good standing is good for your credit history. You are paying exorbitant interest on the balance unnecessarily. This is an urban myth - don't fall for it. If some one checks your credit it will list the credit card and the limit. It will show arrears if you missed the date or payment.

Please show some proof that this is an "urban myth".

I worked in the field of credit/collections for several years. Companies that extend credit do so to get a return on the money they lend. They make NO money from people who pay in full each month. Therefore, they look for people with a history of making payments on time. That's why having such a record improves one's credit score and makes such a person a more attractive client.

[ZoomBoom]

Credit scores will not increase if you have no previous credit and pay your card off monthly. Posheak is definitely 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]

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.

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, i.e. 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 doesn't 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,