A question our financial educators are often asked by people is if it is better for their credit score to carry a balance on their credit cards every month instead of having a zero balance. Actually, that is one of the most popular credit myths – that it’s better to carry a balance. The truth is that the FICO credit scoring company likes that you have credit and that you use it, but the less you owe, the better your score. So carrying a balance will not help your score; in fact, it will hurt it.
Additionally, you may think that owing half of your credit limit – such as $1,000 on a $2,000 credit card limit – is perfectly fine and that you’re playing by the credit scoring rules. However, this is a common mistake that many people make. It may seem perfectly fine to owe half of your available credit line – you’re not over-the-limit and not maxed out – but the rules of the credit scoring game say otherwise. Owing 50 percent or more of your available credit is, to quote FICO, “a score killer.” Many people take a serious hit on their credit score because they’re unaware of how the credit scoring game is played. To have a good credit score, you do need to have credit and use it, but –again – the less you owe, the better your score.
Mark Foster is Director of Education with Credit Counseling of Arkansas (CCOA). CCOA is a member of the National Foundation for Credit Counseling. Contact CCOA at 800.889.4916, or visit CCOA online at www.CCOAcares.com.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.