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Question By
JDiGorio

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Is it better to pay off a credit card every month or make payments toward the balance every month?
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It is almost always better to pay off your credit card completely if you have the financial means to do so. From a financial perspective, unless you have a special rate on your credit card balance (say 3.00% or lower), you are generally better off paying the monthly balance in full. An exception could be to have cash for emergencies. In today’s economic environment, having cash can be very useful should you lose your job or run into another financial emergency.

From an optimal credit score perspective, paying interest on a balance doesn’t help your score. Using your credit card once every few months is enough to build a history of responsible credit use and payment.

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The best way to build your credit is multi-faceted.  Do not apply for credit cards just because you get a flyer in the mail........avoid pre-approved offers.  When you make payments on your existing accounts, pay as much as you can afford above and beyond the minimal amount required by the company billing you and never pay just the interest accrued on the card for the month.  Do not pay so much that it "takes food off your table", but always pay a bit more than required and ALWAYS pay your bills earlier than required.  Make monthly payments for a minimum of six months to establish a credit record and then pay off the balance as soon as possible.  Do not let your cards sit idle for too long or you run the risk of having your card and account closed by the lender due to in-activity which in some cases causes potential lenders to view your credit worthiness as less than desireable.  Remember, they are in business to make money in the form of interest on your account and if you do not use the account, you are worthless to them as a source of income.  Use each card at least one time every six months or so and then pay off the card in full if you have pre-established the account as stated above.  Do not shop around for items to charge without seriously considering a purchase.  Any time you give your social security number to a potential lender, you have an inquiry added to your credit report.  If you do buy from a lender, the inquiry will be deleted when an account is activated.  If an account is not activated, the inquiry will be on your credit report for two years and too many inquires are just as bad as not paying your existing accounts on time or defaulting on your bills.  It is important for you to know that the credit retention centers (equifax, experian and trans-union) were created by doctors, attorneys and bankers for the sole purpose of protecting THIER interests and not yours.  Do not give them the chance to ruin your credit history which can effect your entire life for the rest of your life.  Bankruptsy will stay on your history for a minimum of seven years.  Bad debts will usually stay on your report for a minimum of three years IF IT IS NOT RE-ENTERED by the creditor.  The creditor has the right to re-enter the negative information for as many years as they want and some of them will 'dog' you for decades!  If you go into collections, contact the collection bureau and get a promise from them IN WRITING stating if you pay your account correctly and in a timely manner as required by them that they will remove all records and references to them from your credit report.  BE ADVISED:  credit correction companies charging hundreds and sometimes even thousands of dollars are not doing anything you can not do for yourself for free.  Every time credit is refused to you, you have the right to see a copy of the credit report from the agency contacted.  READ THE BACK OF THE REPORT for instructions on correcting and improving your report.......IT IS FREE and the same process used by credit correction agencies.  NEVER use a company that offers to reduce your payments or combine your payments into one affordable monthly payment.  To creditors, this is a red flag saying you cannot manage your credit or money.

Reply by
Pampurrs

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Desertboatman is incorrect regarding inquiries.  It doesn't matter whether or not the credit was granted or denied.  ANY inquiry remains on your CR for two years.

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Reply by
reid24

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well each creditor i applied with i got the credit and the inquiry is still there

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Maintain small balances

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I'm in the process of buying a home. Three people (mortgage broker, real estate agent, and atty helping repair credit issues) told me that maintaining a small balance on my credit cards would help my score. Keep your balances under 25% of your available credit; just carrying a balance of 5% is good. The fact that you have credit available helps your score. The fact that you are able to responsibly use that avaiable credit (pay your bill on time!) will be even better for your score. I always payed my credit cards in full each month ...before I even got the bill to avoid paying interest. I followed the advice I got and my score increased.

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It is almost always better to pay off your credit card completely if you have the financial means to do so. From a financial perspective, unless you have a special rate on your credit card balance (say 3.00% or lower), you are generally better off paying the monthly balance in full. An exception could be to have cash for emergencies. In today’s economic environment, having cash can be very useful should you lose your job or run into another financial emergency.

From an optimal credit score perspective, paying interest on a balance doesn’t help your score. Using your credit card once every few months is enough to build a history of responsible credit use and payment.

Reply by
kingale

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I used a different paid to monitor service for years and it explained this in detail and appears to be true.  Easiest way I can put this is: 

Each month the reporting agency looks at what you owed the last time the balance was reported and compare to present report.  If balance is higher you have increased your debt and therefore a possible lowering will occure.  So even if you pay off the balance every month one month the reported balance at the time could be $350 compared to $0.  I have been paying 2 credit cards off in full for over 2 years and watch my score bounce around plus or minus 5 to10 points.  In the past most recent hit was for 9 points because both credit cards had a higher balance reported this period than last.  The problem is they look at percent increases and if you had a $1 balance and then next report a $5 balance the computer systems look at it as a 500% increase.  

Sad fact is when I had $5000 credit bebt  and spent $300 a month then paid $500 each month my score hardly every changed and when it was positive.  The way they calculate ours scores is really messed up.

Reply by
dogmb40

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It is best to use all of your credit cards at least once per month and pay off 100% of the balance.  This will greatly help your credit score and cost you nothing in interest.  If you have 4 credit cards, then  use a different one each time you fill up your car with gas.  I followed this method and it always helped my score.  On my report it says paying as agreed and payed more than the minimum.....since I always payoff 100%.  A good rule to follow is do not use the card unless you have the money in the bank, at the time you use the card.  That way when the bill comes due, you will always be able to pay it off.

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I pay my monthly bills with credit cards using only 10% to 20% of each card, than every month on the 1st. I pay off the cards 100%  which gives me a "A" Grade on "using" and  100% grade for paying on time. this way my home bills get paid (as they do every mounth) . I pay Cash to eat out or go to the movies. The trichk is if you use OVER 21% of you credit card you get a LOWER grade in you report card..  You want to show that you are a responible person with your money.

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