Will Carrying a Balance Boost Your Credit Score?

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It’s a question that goes to the root of the modern credit card, and at Credit.com we hear it all the time: Should you pay your entire credit card bill every month? Or does it give your credit score a boost to leave a small balance month after month?

“Is it better to leave a very small balance on the card so the issuer earns a little interest?” a Credit.com reader using the screen name “DM” wrote us last month.

The answer is simple and unequivocal, Credit.com’s experts say: Pay the whole thing — if you can. Keeping a balance on your card month after month doesn’t improve your credit. In fact, it could lower your credit score somewhat, because scores take into account how much of your available credit you actually use. The more you use, generally, the lower your score.

Which means you get no reward from keeping even a small balance on your card. All you get is extra costs, since all credit cards charge relatively high interest rates on balances.

“It is in the consumer’s best interest to pay the balance in full each month when due so as to not accrue any interest charges,” says Tom Quinn, Credit.com’s credit scoring expert.

DM also had a second question: Should you pay his utility bills with his credit card, or will that hurt your credit?

“In other words, does it ever matter ‘what’ you charge to the card,” DM asks. “Is it looked at differently in some way — good or bad?”

The answer, according to the experts, is that everything you buy with a credit card affects your credit score the same way. You can charge gas, you phone bill or Netflix movies. Whatever you charge, of you fail to pay your bill, it will hurt your credit score. Conversely, if you can pay your entire credit card bill every month, you will avoid interest charges.

“No matter what you charge, it doesn’t matter,” says Gerri Detweiler, Credit.com’s consumer credit expert. “The credit report doesn’t report that type of information.”

Image: Stan Dalone, via Flickr