Credit Cards - Pay in full or not?

[NoMo]

I don't understand this thread. Why would paying interest help me in my financial well-being. If my credit score goes up b/c I pay interest, then sounds like my credit score is not a good gauge of financial success. Who cares about your "score" It means nothing.

[rob62521]

Originally Posted by NoMo

I don't understand this thread. Why would paying interest help me in my financial well-being. If my credit score goes up b/c I pay interest, then sounds like my credit score is not a good gauge of financial success. Who cares about your "score" It means nothing.

As screwy as it might seem, a high credit score is very beneficial. Let me start with something that happened over 17 years ago...

I was getting married and my husband to be didn't have a checking account, saved up to buy his cars, and lived at home. He had no debt. When we went to buy a house, because he didn't have debt, he didn't have a credit rating or credit score. Financial institutions basically felt he didn't exist. Right or wrong, that's how the system worked. The home loan was basically based on my credit rating. After a few years when we refinanced (home loans in 1990 were 10% btw) and got an interest rate of 7%, because we had paid our loan on time, my husband now had a credit rating or credit score. It has helped when we financed cars and such. That's why paying some interest helps. Because we have such good credit scores, our credit union even cut our interest rate on our last vehicle by half of a percent.

Credit scores are being used more widely than ever before...some insurance companies use it to determine your rates and some employers even use it to decide if you are going to be a good employee.

I'm sure there are other folks in this forum who can better explain and in more detail the importance of a good credit score, but it is important...it is your "reputation" to the world so to speak.

[skydivingchic]

The above example only demonstrates why it is important to have a good credit score - which does not necessarily require you to pay interest.

If you type "FICO score formula" into Google, you will find multiple references with the following basic formula (I'd post a direct link, but I don't have enough posts to do so):
Payment history - 35%
Debt (ratio of credit used to that available) - 30%
Length of credit history - 15%
New credit - 10%
Types of credit - 10%

With the possible exception of only one of those criteria, none require you to pay interest in order to get a good score. The single biggest factor is whether or not you have consistently paid your bills on time (payment history). The next biggest factor, debt used compared to that available, would in fact be helped by low or non-existant balances. I believe the general rule of thumb is less than 25-30% utilization of your available credit lines. As others have said, if you are using a CC consistently, it would be a rare ocassion that your report would be pulled and a $0 balance reflected even if the card is paid in full every month (and thus no interest being paid). The next biggest catagory - length of credit history - also has nothing to do with paying interest, but rather how long you've had some type of credit and how long your individual credit lines have been held.

The only possible category that never paying interest could affect is the types of credit. Taking a car or mortgage loan would, with rare exceptions, require interest to be paid. So if you never use either of these loan products, your score may suffer somewhat. But that whole category accounts for only 10% of the score, so it would have a pretty minor affect. Also, if you had some type of credit (CC for example), you should get at least "partial credit" for this criteria.

In conclusion, the problem wasn't that your husband hadn't paid anyone interest, it was that he had no credit history. After having the mortgage for several years, he had established a history that loan decisions could be based off of. If instead of taking out a mortgage (and therefore paying interest), he had applied for a CC, used to consistently, and paid in full and on time for the same lenght of time, his score would most likely have been the same (or nearly so). His score did not go up as a result of having paid interest - it went up because he went from having no credit history to having a history that potential lenders could base a decision on.

[Snodog]

You can have a good credit score without paying interest. I have a score in the 820's and I pay our credit cards in full each month.

[txex86]

Originally Posted by jedi

I pay in full every month. The interest is just not worth paying.

I agree and we do exactly the same thing when it comes to CC's.

[rob62521]

We pay our credit cards in full each month also.

[i-endeavors]

Plus if you pay in full and have a card that offer a rewards program, you can fully take advantage of actually earning money from using your credit card.