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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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Question By
JDiGorio

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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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Response by
JRobertLaw

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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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Response by
JRobertLaw

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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.

Reply by
dogmb40

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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
kingale

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Sroman, I'm in a similar situation.  I have the Cap One secured card and it took a little over 3 months to report, but when it did, I went up about 110 points, so just hang on, eventually it will show up.

Reply by
ergilley

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Pay the credit card down before it statements, then it will keep your utilization rate down.

10% utilization is best, but up to 30% can be ok, as long as you aren't running up other cards.

even better, spread the debt among different cards, so no card appears like it's being 'maxed' out.

Reply by
sroman1125

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I THINK PAYING THEM OFF ENTIRELY IS THE RIGHT WAY TO GO AS WELL.  WHAT I WOULD LIKE TO ASK IS THIS....I FILED BANKRUPTCY ALMOST 18 MTHS. AGO AND I WAS ACTUALLY GIVEN A CREDIT CARD BY ONE OF THE COMPANIES I FILED AGAINST.  I WANT TO USE IT WISELY AND PROVE MYSELF WORTHY SO I PLANNED TO PAY FOR MY GROCERIES  EACH WEEK AND PAY IT OFF MONTHLY AS SOON AS THE ACCOUNT GENERATES A BILL.  I CAN DO THIS BECAUSE I ALWAYS KEEP MY GROCERY MONEY IN MY SAVINGS UNTIL ITS TIME TO TRANSFER IT.  DO YOU BELIEVE THAT THIS IS A GOOD IDEA?  THANK U---SUSAN

Reply by
CHRISTMAS1958

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I use one credit card to charge everything and the monthly balance can be as high as $4000 but

I pay in full based on due date. The 4000 is about 20% of my limit of 20000.  I think this is hurting my credit score. Can you comment and if it is to what extent ?

Reply by
ckpooh1

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i agree with this. i peronally pay it off in full every time i can and ialready rose 40 points in a month. about 60 in 2. went from a 580 to a 640

Reply by
smuffles

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Thanks a lot for the clarification. 

I have been reading online and there are various theories on how if you do not have an outstanding balance (full payment), nothing is reported to the credit bureaus. I found this difficult to imagine, where the entire credit scoring mechanism comes out in favor or credit card companies. I am just trying to build a credit history since I am new to USA, so I prefer to payoff my outstanding balances monthly.

Reply by
swastik55

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Why would you give "Murphy" the slightest chance of moving in to your spare bedroom? 

Just when you are getting ready to pay off the monthly balance; you car dies and costs $700 to fix.  Well!  I'll just wait 'til next month and pay the Card balance in full.  Next month, your transmission goes with a repair cost of $1500.  Well, I'll just pay $300 this month and catch up next month.  The "next month",  your kid needs braces for $2000.

As life rides with "Murphy", 3 or 4 years go by and you just can't understand why you have an outstanding card balance of $30 or $40K? 

Don't use a credit card period.  An ATM card will work just find and allows you to see the money leave your account at point of purchase....Making you pause, hopefully.

Reply by
stgcret

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In any economy it is always better to pay cash for purchases.  When you are debt free it doesn't matter what the economy is perceived to be. 

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Reply by
jte1958

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So...if I were to put maybe a cell phone bill to be automatically taken from one card and then pay it off in full this would increase my credit score?

Reply by
dgrimm2420

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ergilly, I did the same (just got a secured card) and am trying feverishly to do the best to get the score up as much as I can. I'm curious how you made purchases, made your payments, left your balances - in order to get your score up 110 points in just 3 months?

Thanks!

Reply by
queenofking1976

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tyson i have worked hard to maintaine a good credit score for my 20yr daughter i pay the 2 credit cards she has we have used them but never max them both are always more then 60%avilible credit however ther are 8 new hard inquries on her report so with in 1month her score droped 39points how can i fix this should i just pay the cards off and stop using them and what do i do about the other lenders we applyed for that now show on her report pl help if you can thanks

Reply by
mariag51

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Additionally, carrying high balances on any credit card, whether it be consumer or retail, is then assigned a negative point value to your credit score (I believe varying between 15-30 points!) depending on how much of the balance you have maxed out up to 100%. So, 30 points negative to your credit score simply because you have a single card maxed out! However, that only 30 points only applies one time. I apologize if it's not 30 points (more/less), or if credit laws have changed since I last checked. Please correct me if I'm wrong :)

Reply by
tysonevans77

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Additionally, carrying high balances on any credit card, whether it be consumer or retail, is then assigned a negative point value to your credit score (I believe varying between 15-30 points!) depending on how much of the balance you have maxed out up to 100%. So, 30 points negative to your credit score simply because you have a single card maxed out! However, that only 30 points only applies one time. I apologize if it's not 30 points (more/less), or if credit laws have changed since I last checked. Please correct me if I'm wrong :) Sorry if you read this further down. I posted this there first before deciding to post here. Thanks for reading. -Tyson

Reply by
tysonevans77

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so true, was so happy my scores had gotten into the 720 ish range with exception of one of them, then bought tires, paid cash for half of the amount, credit for the rest (promo pay off in 6 months and no interest) which I did, but my scores went down to the fair range of high 600's. So discouraging.

Reply by
theshikai

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I am in the process of a divorce. My "ex" ruined our credit so I am trying to rebuild mine. I have a capitol one credit card with a very low balance. I use this card atleast once a month and I pay the balance in full. I dont want to pay interest on my money so I've been paying in full. I've had this card for 3 months and according to my credit history, I see no improvement. I have paid all of my debt in full. How long til I see acknowledgement from this?

Reply by
bobbylover

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good advice,  thank you !!!

Reply by
BishopTK1379

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Thank you for the important bit of information about paying off my cards.  I only owe a total on $1,004.  So I plan on paying that off by next month.  Have a good day !! TK

Reply by
BishopTK1379

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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.

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Response by
desertboatman

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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.

Reply by
Pampurrs

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

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Reply by
reid24

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Most of that is accurate but it is federal law that any collections account must be removed from your report after 7 years from the time you missed the first payment. 

One other discrepancy is the fact that creditors are in business to make money but they aren't as interested in making money on the interest accrued on your account, they make their money from charging the company that swipes your card a fee, usually 3% of the total sale, credit card companies prefer you pay the entire balance in full every month. I made a large purchase a couple months ago and it took most of the $2000 credit limit to make the purchase, I paid it off the same month and the company increased my limit by $1500 and my credit score went up by 30 points....

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jtrador

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desertboatman is also wrong about reentering debt.  If it has been more than 7 years since there has been any activity on the account it is not legal to reenter it.  Yes collection agencies do so, but you can contest the reenter and have it removed from your record.

Reply by
ParisGal

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thank you a lot of helpful info!!

Reply by
slm111

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What if I want to Consolidate my student loans is that a good idea? Will that go on my credit score? If so will that cause it to be lowered?

Reply by
dancebaby

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Why should pre-approved credit deals be avoided? Especially if it's one from, say, Discover?

Reply by
airronic

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sneakzorz, you are correct that a 0% utilization of your credit cards will lower your score. BUT you are incorrect in the way you think this is calculated. As Lesismore46 stated, The balance reported to the credit agency is based on the amount that is on your bill when they mail it out (or post it online etc). They report it to the credit agency at this time, before you have even had a chance to pay it. As you know, If you pay it in full before the due date, no interest is accured. But as far as the credit reporting agency is concerned, this counts as utilization of your credit card.

 So, suppose your limit is 1000, you charge 750, and pay it off as soon as you get your bill. This will count as 75% utilization as far as the credit reporting agency is concerned, even though no interest was accrued and you paid it off immediately.

The best way to improve your utilization score in my understanding, is to use 1%-9% of your limit and PIF(pay in full) immediately when you get the bill. You don't have to carry a balance month to month and you don't ever have to pay any interest.

Sorry so long. I hope this helps clear some things up.

Response by
dees2003

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dees-

I suspected that the balance reported to the credit bureaus was the monthly closing balance as reported on the statement. In an effort to manage utilization, I sometimes submit a payment before the closing date so the balance report maintains acceptable utilization ratios. Think it works ?

Reply by
ricksplace

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That is correct.  I do the same.

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Reply by
ctcushing

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I agree wit the same. Have been tryng to do that but not been able to lately.

Reply by
nagdeep

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I'm confused. Why does the credit simulator say that my credit will go DOWN if I pay all my balances off. ??... especially when everyone is saying what I thought to be correct- that you should pay it off in full every month. 

Reply by
Bethk84

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i use mine all the time i leave a balance on it of 30% and i havent paid interest yet. there are a lot of dates to consider. when they report to agencies, your due date and also if you have it grace period. i charge my card and and always pay off some of what i charged before the due date usually 3 or 4 days before. like i charge 20 bucks a week for gas but i only pay 60 before the due date. that leaves 20 on the card as balance that gets reported. since that last charge was maybe a day before i paid my grace period on it starts a then. i keep charging and paying in the same way so its always paid within the grace period so i get no interest charges i am always reported at below 30% and i am always using it and never late. just pay charge and watch when the report. i am also a nut and check my bank account everysingle day to see what has gone thru and what has not as well as all my credit cards atleast twice a week aswell.

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Reply by
iand1234

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Thanx for your post!

I could not figure out why I was showing 0% utilization when I was using one of my cards every month.  I happen to be paying it off BEFORE the bill was even posted online.

Reply by
tsarge76

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dees2003's is incorrect on credit utilization. The balance reported to the credit bureau is the balance on your closing date. Say your balance is $1000 and you pay in full before closing date your credit utilization will be 0. It is the balance in closing date. It doesn't matter how much you used through out the month. Whatever balance in closing date is what is reported. If your bill is $1000 and you pay $900 your balance in closing date is $100 so your credit utilization will be 10% NOT 90%. 

Reply by
Time4

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Why don't you just pay the $750.00 off before they print the statement?

You don't have to show a balance month to month, and you don't ever have to pay any interest, fees or penalties.

The Credit Karma credit score simulator says paying off the entire balance of all of your credit cards can greatly improve your credit score.  Why not do this every month?

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Reply by
Sumflow

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The best strategy is to view your CR to see what day of the month each credit card company reports, then make an online payment prior to that date to bring your utilization down to 0-35%.  I usually leave 10% for reporting date (to help score), and pay in full before due date to avoid interest.  I have a $1,000.00 Visa and a $5,000.00 Visa and have never paid interest on either one of them.  I never charge anything on either card unless I have the money in the bank or in my purse.  In my opinion, credit cards are for convenience and for improving your score so you can get the best rate on car loans when you need them.  The biggest mistake anyone can make is to view a credit card as an excuse to go shopping.

Reply by
Pampurrs

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Watch for your closing dates on your credit cards.  If you want to take advantage of the "utilization" then allow the credit card company to record your balance, it happens usually a couple days before closing date, then pay in full.  You will never pay interest, and you will get the use of the utilization record.  If that is your goal.  My utilization is sitting at 0% 90% of the time and it has never affected my score.  There is no need to ever pay interest or leave a balance on a credit card.  Ever. 

Response by
BriteBulb

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I believe the poster stating that credit card companies, or any debtor for that manner, can continue to report debts "for decades". This is called re-aging a debt, and I believe it's illegal. For example, you have a 7 year old debt which is due to drop off your credit report in a couple of months. The collection agency or credit card company sells your debt to someone else, effectively starting that debt fresh. This cannot be done. You can dispute this and it must be taken off your credit report. Please also be aware that each state has statute of limitations on debt collections for various debts. This does not mean that the debt will drop off your record in less than 7 or 10 years, depending on the item, it just means that you can only be pursued for that debt for a certain period of time. For example, here in Florida, the statute of limitations on medical debts and credit card debt collection is 4 years. After that 4 years, you can longer be pursued to pay that debt, but it will stay on your report. Several years ago, I got a medical bill for something that had occured about 6 or 7 years prior, that I had never received before. Since it was past the 4 year statute of limitations, I sent the bill back with a note stating that the statute of limitations had expired for that debt, that I was unaware of it, and that it should have been covered by insurance. I never heard another word, and it was never reported on my credit report. I have several old credit card debts, 5-6 years old, that have been charged of, because they can no longer be collected. They still show on my credit report, and yes, they hurt my score, but I can no longer be pursued for payment.

Response by
kimlovesfl

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...unless you acknowlege the debt in some way like making a payment (however small) on it.  Then the statute of limitations clock is reset.  This is what they are trying to trick you into doing.

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Reply by
ctcushing

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Reply by
cheanab

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Does someone have a good link to a listing of these statues of limitation? 

I also have some of this old junk hurting my score, but at least I might be able to get them off my phone. 

Two (or technically four) of the things bringing my score down are debts that seems to have been sold repeatedly. At least they are being listed  by different collectors for the same original amount. CK is clearly counting them as seperate "collections" entries though, so I'm concerned. 

Reply by
Pharmercist

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i ammend my statement above . it is seven years not 7 1/2.

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Reply by
iand1234

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ctcushing you are incorrect. it is illegal to reage a debt on your credit report. FCRA of 1970. your debt must be removed 7 years from original date of default. original date of default is reported after you are 120 days late. so debt must be removed 7 1/2 years later. however yo can reset the sol to persue you for a debt. you must know your states sol. in florida it is 5years. all that means is that they can still bring you to court to get the money you owe them. that means the debt isnt reported on your credit report but they can still sue you for it. i hope it is a little clearer now.

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Reply by
iand1234

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If you have more than one card with an outstanding amount due, but cannot afford to pay both off completely, pay the minimum amount on the one with the lower interest rate, and pay off the one with the higher interest rate first. More than two? Pay off the one with the highest interest rate first, then the next higher, and down the line. Pay the minimum on the lower interest rate cards per month to protct your record of not being late as you go along.

Response by
JerryB

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Ive found that this works well.  I also find that if I completely pay off one card and leave it idle for a few months I will get a promotional rate (say 0-3%) and lasting 12-18 months.  I then transfer the balance from my highest rate card to that card.  It has helped tremendously.

Reply by
nomoney21

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payoff
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paying off your card every month is better. 1. your score will increase and 2. you avoid getting an interest fee

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Response by
dmtzamerica

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Sav825.... No, you misunderstood what STRUGGLINGSTUDENT said. His grandfather simply suggested is to not pay off th balance in the full and make monthly payments until the balance has reached to zero balance and when it's in zero balance.... just don't use credit card for awhile like 6 months, one year.... and yes, you can use it again later on if needed. The reason why grandfather said that is because it will help to build your credit the longer you have had your credit card being in active status for long time. It is NOT recommended to have your credit card account closed at all because it will affect your scores which it will pull your scores down. So, always leave your account open for ... rest of your life if you want to preserve your credit, to kepep your credit score stay that way or to have your credit score increased by other way however you do such as making a purchase of house, vehicle...whatnot. 

Reply by
starbuckslover

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I would pay down on the balance before the due date and leave around 7 to 10% on it and then pay the remaining balance after the statement closing date. If you pay off your balance before the statement closing date and your statement reads o balance, you will not earn any points. Utilization is a main key to earning points every month. Your statement closing date is approximately 5 days after your due date. Example: If your statement due date is on the 27th of the end of the month then your closing date will be around the 2nd of each month. I suggest paying the remaning balance off after your closing date and leaving 7 to 10% to reflect on your statement in order to earn more/higher points. The less % you report the more points you earn.

Response by
johnhard

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Ok a lot of these statements are confusing. From my understanding if I have a card that has a $300 credit limit, you should not use more than 30% fo your limit which is $100. You can make muliple payments BEFORE the closing date. So if I buy something for $250 but then make a $200 payment before the closing date. It will only show $50 as balance.

So if you utilize your card more than the 30%, I suggest to make multiple payments before the closing date so that your utlization will stay below 30%

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Response by
dbatl2012

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Rather than making several smaller payments. You are actually better off making 1 large payment. 

It has to do with reporting the use of the credit. the CC co's report once a month. If you pay it down before you receive a bill it's as if you never used it. Yes, your utilization will be lower but it doesn't give the CC's a chance to see that you can afford to pay it down. All they will see is that you used $50 and paid it off.  

I transfer the money into my Bill Pay acct. then when the bill is due  it is automatically set up to pay the entire balance 10 days before the due date. 

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Reply by
EddyTX

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Use prudent financial management. Don't charge more than you can pay off. i use quicken to track purchases and never go over my ability to pay the total charges every month.

Response by
libbycove

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