Credit Cards - Pay in full or not?

krayziebone33 · #1 (**permalink**) 07-11-2007, 08:10 PM

Hi guys and gals,

I'll start by telling you all the story and then seeing what you think about it. I know everybody is going to have his or her own opinion, for the most part, but I encourage everybody to weigh in.

I was at work yesterday and I was asking one of the girls there if she made most of her purchases with cash, debit, or credit. She told me that she makes most of her purchases every month with credit and she pays the balance in full at the end of each billing cycle. My manager and another co-worker overheard that and weighed in. They both were saying that it is actually better to carry a balance on one's credit card rather than paying it off in full every month because creditors are afraid of people who pay their balance in full every month. The logic as explained to me was that by doing that, you really aren't building credit. It just looks like you have a credit card that is not being used. By maintaining some sort of balance and paying a portion of it every month, you're showing that you can make payments and you're actually using the card. Is this true? I have ALWAYS heard that it is better to pay one's balance in full and that the number of years you kept the credit card open is what impressed potential lenders.

Can the credit card gurus weigh in and tell me what the deal is? Should I be paying my balance in full every month or should I carry a balance? Which one is truly better? Does it depend on whose looking at your credit report? Does the type of loan you're applying for make a difference? Everyone, please weigh in.

neatdesign · #2 (**permalink**) 07-11-2007, 08:15 PM

Your manager and colleague are sadly mistaken. Paying interest only means one thing: The banks get to keep your money instead of you. The only difference between paying a partial balance on time and paying the full balance on time is that the banks make money off of you. It's that simple.

~ Jenney

sweeps · #3 (**permalink**) 07-11-2007, 08:20 PM

Pay your balance in full every month. There is no benefit to your score by carrying a balance. Making charges every month and not being late in paying are what counts.

And -- even if carrying a balance did count for some extra points -- the whole point of trying for a better credit score is to improve your finances. Carrying a balance and paying interest to the credit card company defeats the purpose.

disneysteve · #4 (**permalink**) 07-12-2007, 06:59 AM

Yep, the folks at work are dead wrong and paying dearly for their error.

Paying your bills in full each and every month does a perfectly good job of establishing credit. Do the CC companies like it? Of course not. They don't make nearly as much money that way.

Besides, even though I pay my bills in full, there is never a zero balance on my account because we use the card regularly, nearly every day. So when someone looks at my credit report, it shows an active balance on the account. They don't care if I pay it in full or not.

MonkeyMama · #5 (**permalink**) 07-12-2007, 07:52 AM

Agreed with everyone else. I pay every month and like Steve says - it will always show a balance on my credit report depending when they pull records. It establishes a history just fine. I have had up to a $2k-$3k bill some months which reflects on my credit report that I was able to borrow that much and pay it back. But even if you just borrowed and paid off $100 every month I am sure it has the same effect.

I get into this debate a lot with people and the auto loan one. There are a lot of myths out there that you have to take an auto loan to establish credit. That you have to take personal loans and/or keep balances on your credit card.

We don't buy into it and we both have excellent credit scores.

krayziebone33 · #6 (**permalink**) 07-12-2007, 07:54 AM

Thank you. That's what I thought. I couldn't understand why they were saying what they were saying. I just didn't get it at all. He was saying the same thing about student loans. He said that its better to pay your student loans on a monthly basis rather than paying the full amount if you're able to. It was the same logic. Creditors will look to see that you're making the monthly payments rather than paying the amount in full. It doesn't seem to make sense and that's why I wanted to ask you all what the deal was about that. Thanks for the information.

MonkeyMama · #7 (**permalink**) 07-12-2007, 08:00 AM

They believe it because their friends in the mortgage and auto loan industry espouse it.

I was at a seminar put on by a mortgage broker who was going on and on about all the money you need to borrow and balances you need to keep to establish credit - in order to get a good mortgage. Who are you gonna believe, your friends and/or colleagues or the lending professionals?

Aleta · #8 (**permalink**) 07-12-2007, 08:32 AM

Wow Steve: I never thought about the fact that you're always carrying a balance. What a great tip that is. I pay mine in full every month as well. They make money anyway because they tag it on to the business you're buying from.

vsjhoc · #9 (**permalink**) 07-12-2007, 08:52 AM

For your score, it only matters what your balance is on the date that your credit card company reports it to the credit bureaus. And that is something that you have no control over. It might be the day after the due date, so if you pay in full you'd have a zero balance. It might be the end of the statement period. The day that your Discover card reports may not be the same day that mine does. And it only matters for the most recent info your credit card company reported. It doesn't matter whether you paid in full for 6 months or carried a balance.

So everyone has given the right answer -- it makes the most sense to pay in full and pay no finance charges. If you are at the time when you are actually applying for a mortgage, that would be the only time to try to fine tune your score by keeping your balances very low relative to your credit limit.

Ima saver · #10 (**permalink**) 07-12-2007, 08:57 AM

I agree with everyone else, pay it in full each month. Since my husband uses our credit card at home depot almost every day (for building supplies) there is always a balance on our credit card and I check it every few days. There is never a zero balance, but we never pay interest. In stead, we get cash back several times a year.

disneysteve · #11 (**permalink**) 07-12-2007, 10:15 AM

Quote:

Originally Posted by vsjhoc

It might be the day after the due date, so if you pay in full you'd have a zero balance.

Actually, this is the point I was making above. Even though I pay my bill in full, I never have a zero balance. Why? There is a time gap between when the billing cycle ends and when the bill gets paid. During that time, I continue to use the card generating new charges. So by the time my payment gets posted, there is a new balance of a few hundred or a thousand or more dollars. The balance is never zero.

vsjhoc · #12 (**permalink**) 07-12-2007, 11:03 AM

Quote:

Originally Posted by disneysteve

Actually, this is the point I was making above. Even though I pay my bill in full, I never have a zero balance. Why? There is a time gap between when the billing cycle ends and when the bill gets paid. During that time, I continue to use the card generating new charges. So by the time my payment gets posted, there is a new balance of a few hundred or a thousand or more dollars. The balance is never zero.

Right, I was just trying to keep things simple. IF you pay in full and IF you don't use your card after the closing date of the statement and before the reporting date, THEN you have a zero balance.

parafly · #13 (**permalink**) 07-12-2007, 02:01 PM

I pay my CC in full every month, and my TransUnion score is currently 826. Obviously, they don't see it as a problem, and neither should your friend.

buzz · #14 (**permalink**) 07-13-2007, 08:28 PM

Quote:

Originally Posted by krayziebone33

Hi guys and gals,

They both were saying that it is actually better to carry a balance on one's credit card rather than paying it off in full every month because creditors are afraid of people who pay their balance in full every month. The logic as explained to me was that by doing that, you really aren't building credit. It just looks like you have a credit card that is not being used. By maintaining some sort of balance and paying a portion of it every month, you're showing that you can make payments and you're actually using the card.

Have these two ever looked at a credit report? I always pay in full, but my reports show a balance every month. I have a question for these two know-it-alls: What is the point of a Rewards or Cash-back card if you carry a balance? The interest would nullify most, if not all, of the rewards!

jedi · #15 (**permalink**) 07-13-2007, 11:52 PM

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

Like2Plan · #16 (**permalink**) 07-14-2007, 05:58 AM

I always pay in full every month unless I have an interest free offer. In the case of an interest free loan, I put the money aside to pay it off by the time the offer expires.

I can't stand the thought of paying more than retail for an item. I wonder if your co-workers had thought about it in those terms? If they are paying interest on their purchases, they are tacking on a surcharge to all their goods and services. If they are just paying minimum payments and they have a high interest rate, they are paying a big surchage!

rob62521 · #17 (**permalink**) 07-14-2007, 07:57 AM

We pay in full each month also and our credit scores are very high. It sounds like maybe they are justifying carrying a balance.

krayziebone33 · #18 (**permalink**) 07-16-2007, 12:50 PM

Yeah, I knew they didn't know what they were talking about so I just shut my mouth and let it ride. I have continued paying my CC in full every month.

On an interesting note, I went to the bank to change my PIN and they offered me another CC. I took home some brochures and I'll look into it.

jamai · #19 (**permalink**) 07-16-2007, 05:45 PM

credit is calculated on a daily basis, even if you pay off your balance in full every month, your activities will be noticed and reported to the credit reference agencies..

boefixepa · #20 (**permalink**) 07-17-2007, 09:09 AM

I'm with everyone else....pay in full every month... (unless of course you have a 0% interest rate and the money to pay it off is earning money for you during the 0% term.)

That being said, I believe Rob had it right. The people who gave you that bad advice are just trying to 'justify' their own balance that they probably 'have' to carry because they are not money wise.