Many people believe that you need to carry over a balance from month to month on your cards in order to build credit, but it isn't true. This myth is particularly harmful for those of us who are working to build our credit. We often have higher interest rates because our credit history, or lack thereof, makes us look like riskier borrowers. As a result, carrying a balance can cost more money, since interest is generally calculated on the statement balance remaining after your monthly payment is made.
You don't need to carry over a balance from month to month on your cards to build credit. [Tweet this]
When should I pay off my credit card?
Ideally, you should be making regular purchases on your card every month, and then paying off the balance in full on every statement. There is no need to pay your cards back more frequently than once a month, since you'll normally only be charged interest if a balance from the previous statement remains on your card after that statement's payment is due. However, making multiple payments a month could be beneficial, as it may help lower your credit utilization rate.
By using your cards and paying the full statement balance each month, you're still demonstrating that you're able to responsibly borrow money. You borrowed for the entire month and paid it right back!
Potential Credit Effects
The other consideration you want to make when paying your credit cards back is monitoring your reported overall credit card usage. Your credit card utilization refers to how much of your available credit card limits you use per month, and is an important credit factor you can track on Credit Karma. It's generally recommended to keep your overall credit utilization below 30 percent. However, this does not mean that lower is always better. If your reported credit utilization is consistently 0 percent, lenders who pull your information may not feel confident that you're able to borrow and repay money because your credit report doesn't show that you have been.
So when you're paying back your full credit card balances every month, it is valuable to keep track of when your lender generally reports to the credit bureaus. By doing this, you can make a point to have a balance at the time they report. This helps ensure that you get your due credit for responsible, interest-free, month-to-month borrowing. You deserve it.
Alternatively, if you currently have a higher credit card utilization that you are not able to pay back every month, you could try paying down your cards to under 30 percent at the time your lender reports, even if they will need to fluctuate back up afterwards. This can help establish a record of stable and manageable debt, even as you continue to work at paying down your balances.
But how do you keep track of when your lenders are reporting your information? Normally, your full credit report on Credit Karma will includes your lenders' "last reported" date. If you connect your online accounts, you can also check your statement dates and payment due dates for connected accounts.
Unfortunately, many of us are not currently in an ideal credit card debt situation, and we can't pay back our balance every month. If you've already accumulated a larger balance on your cards than you can pay back immediately, you should still try to pay off your cards as quickly as you can. Since carrying a balance doesn't necessarily build your positive credit history any faster than paying your balance off every month, you're probably not getting anything in return for the interest you're being charged.
Use our Debt Repayment Calculator to help you visualize and plan your repayment process -- and remember, avoid that interest at all costs!
About the Author: Laura Ross has been a Member Support Specialist at Credit Karma since December 2013. She can usually be found riding bikes around town late at night, communing with animals and eating sweets.
Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.
Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.