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adw13

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Building Credit History
I am very confused. I was told in my Finance class to always pay in full every month on your credit card if possible. If you pay in full every month after your statement is issued, will you still build your credit history? Many people have told me that I should leave a blance on the card to pay for the next months in order to build credit history. That does not make sense to me. As long as you are using your card, shouldn't you be establishing your credit history? Please, can someone help clarify this for me?

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Yes, you should pay it in full

Carrying a balance month after month doesn't improve your credit score and only costs you money.

On the other hand, if you pay your balance in full and make sure that the balance reported every month is less than 30% of utilization, then you'll see an improvement on your credit score number.

For example, let's suppose that you have a credit card with a limit of $1,000, you statement says it reports the balance to the credit bureaus on May 9th (so your billing cycle is from the April 10th to May 9th). Let's suppose you had a balance of $600 on May 9th and your due date is on May 31st. If you pay it in full by May 31st, you'll see that your credit score will be lower... this is because your utilization ratio is 60% ($600 out of $1,000 limit, this is very high if a 30% or less is expected by the credit lenders). So, in order to pay in full and improve you credit score, you would need to ensure that by May 9th you have a balance of $300 or less (from $100 to $300 is recommended), so, when you pay the remaining amount by May 31st, your score will be higher, because the utilization rate will be of 30% or less.

I hope this explanation results easy to understand.

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