Debunking credit card myths: Does carrying a balance help my credit score?

Jan 11, 2021

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Editor’s note: This post has been updated with new information.

We talk about travel credit cards quite a bit here at TPG. Applying for and utilizing these cards strategically can unlock incredible travel experiences like premium class flights or luxurious hotel rooms. However, there are a number of misconceptions out there when it comes to credit cards, so we’re debunking some of these myths in a series of posts.

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Myth: Carrying a balance helps my credit score

When a credit card issuer is considering whether to approve your application for credit, your credit score is a critical component in the decision. This number is a reflection of how well you can manage any type of credit that has been extended to you, including things like mortgages and home equity loans.

A common misconception out there is that issuers want to see you carrying balances from month to month, as it shows that you are using your cards and could handle new lines of credit. While it’s true that issuers like to see that you use your card each month, you don’t have to hold a balance (which racks up interest) to accomplish this. This myth unfortunately leads some cardholders to not pay their statements in full so as to leave some balance on each account.

woman and baby with laptop and credit card
Photo by Cavan Images / Getty Images

This thinking follows some flawed logic, as it assumes that issuers can only see balances past your statement due date. In reality, credit card companies report your statement balances to the major credit bureaus every month. So even if you pay those off each month, the credit bureaus will have a record of you using your card.

For example, I have auto-pay set up my accounts. Every month, I automatically pay the full statement balance on the payment due date. However, because the statement balance is still being reported to the credit bureaus each month, card issuers still see that I am using the card without carrying any balance over to the next month. There’s simply no need to leave any of my balance unpaid.

Remember that not paying your statement balance in full can result in interest charges that can negate the value of any points or miles you’re earning on the card.

Related: Ten commandments for rewards credit cards

Bottom line

Understanding the factors that make up your credit score can be a bit challenging, but it’s critical to avoid making silly mistakes. In the case of today’s myth, simple confusion around how your balances are reported to the credit bureaus may cause cardholders to not pay balances in full each month, thinking that such activity can improve their score.

In reality, it probably won’t impact your score significantly but will result in unnecessary interest charges. As always, we strongly recommend that you pay your balance in full every month, and hopefully this post has helped at least some of you recognize that carrying balances won’t improve your score!

Additional reporting by Madison Blancaflor. 

Featured image by Hero Images / Getty Images.

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