Keeping Credit Card Balance

[gogreengowhite]

You are right. You should use it, but pay it off each month. There is no reason to not pay it off if you have the cash sitting in your checking acct.

[LoveTrains]

I am confused.

I always have a balance on my credit card, because I use it constantly. However, I always pay the full amount due each month, which means that I don't accrue any interest. But I would never log onto my credit card and pay it off so that the balance was totally $0.

Is that what you are talking about?

As long as you paying all the new charges in full each month it doesn't matter.

If you are saying that he doesn't make that new payment, then that is stupid because he is paying interest.

[phunluvin82]

The myth that your credit will be somehow better if you carry a balance on it is just that, a myth. You are right, your H is wrong.

There is not only no credit benefit, but it could actually be hurting your credit because they look at your debt utilization ratio. $1000 on a card with a $3500 balance means you are using over 20% of your available credit, which is not good.

Not to mention that you are probably paying interest on that $500-$1000 so you are throwing money away in that respect as well.

[dexteroni]

Wow, I haven't heard this debate arise since the early days of TN. You are right; it is NOT better to carry a balance from month to month. The lower your debt to income ratio, the better your credit score will be. And a $1k balance on a $3500 limit card is pushing the limit of an acceptable ratio. (It might even exceed it now, I'm not sure.) Plus, why pay interest if you can afford to pay the bill in full? That's asinine.

[phunluvin82]

Jan 22, 2013 14:04:49 GMT -5 LoveTrains said:

I am confused.

I always have a balance on my credit card, because I use it constantly. However, I always pay the full amount due each month, which means that I don't accrue any interest. But I would never log onto my credit card and pay it off so that the balance was totally $0.

Is that what you are talking about?

As long as you paying all the new charges in full each month it doesn't matter.

If you are saying that he doesn't make that new payment, then that is stupid because he is paying interest.

See, I took the OP's post to mean that her H is NOT paying it off every month...that he is purposely carrying over a balance from month to month. 

Even if your balance does not normally say $0 because you use the card often...you are still paying it down to $0 on what is due for that statement period, not carrying a balance over from month to month.

[Deleted]

Jan 22, 2013 14:08:46 GMT -5 dexteroni said:

Wow, I haven't heard this debate arise since the early days of TN. You are right; it is NOT better to carry a balance from month to month. The lower your debt to income ratio, the better your credit score will be. And a $1k balance on a $3500 limit card is pushing the limit of an acceptable ratio. (It might even exceed it now, I'm not sure.) Plus, why pay interest if you can afford to pay the bill in full? That's asinine.

We get this post about once a month. It is kind of scary.

[dexteroni]

Jan 22, 2013 14:14:07 GMT -5 @missy1 said:

Jan 22, 2013 14:08:46 GMT -5 dexteroni said:

Wow, I haven't heard this debate arise since the early days of TN. You are right; it is NOT better to carry a balance from month to month. The lower your debt to income ratio, the better your credit score will be. And a $1k balance on a $3500 limit card is pushing the limit of an acceptable ratio. (It might even exceed it now, I'm not sure.) Plus, why pay interest if you can afford to pay the bill in full? That's asinine.

We get this post about once a month. It is kind of scary.

On this board? I must mentally block them out. Or the subject line doesn't interest me enough to open the post. lol.

[keweenawlove]

Pay off the balance every month. It makes no sense to pay the interest if you don't have to.

[ijack]

He is wrong.

[SJ]

You should pay the total balance per each month's statement. That does not mean you have to pay it down to $0, but there is no reason to ever incur interest charges if you have the necessary cash.

[phunluvin82]

Here OP, print this article out for your H (see myth #4): money.msn.com/credit-rating/7-nasty-credit-myths-that-will-not-die-weston.aspx

Myth No. 4: "You need to carry a credit card balance to have good scores."

Fact: You don't need to be in debt or pay a penny of interest to have good credit scores.

Your credit reports and scores don't "know" whether you're carrying a balance or paying it off in full every month. That's because the balance reported to the credit bureaus typically is the balance from your last statement, not what was left over after you got that statement and paid the bill. So you might as well pay in full and save yourself the interest.

This myth encourages people to carry unnecessary debt, putting them at the mercy of credit card issuers and eroding their financial security.

[shaynaatl]

I think convincing your husband to pay it off in full every month should be your #1 priority right now. That is a lot of wasted money on interest.

[dexteroni]

Jan 22, 2013 14:23:02 GMT -5 al dente said:

Thank you all so much. This drives me crazy, and I knew it was wrong but never really knew how to verbalize other then I don't do it haha. Sorry if this gets brought up I tried searching for it but kept getting a message of nothing coming up.

Yeah search doesn't seem to be working since the update. You can search by doing a google search with a format like this:

search term site:pandce.proboards.com

[KaraOrNot]

You are right. Why pay the interest, if you can pay it off?

[awkwardpenguin]

Jan 22, 2013 14:00:20 GMT -5 al dente said:

This is a constant conversation between me and my husband, so I was wondering what you ladies think.

My H like to keep $500-1,000 balance on his CC with a $3500 limit. I say we should pay it off in full each month, which we have the money to do. He disagrees and says its better to keep a balance on it for your credit. 

I'll admit that I really have no reason behind my thinking, other then I don't like having debt of any sort. So, feel free to school me and break it down like I'm five. 

Your reason should be "it's stupid to pay interest when we don't have to".

Having an active line of revolving credit is good for your credit history because it shows an on time payment history.  But you can do that paying off the full monthly balance.  Even if you don't use it every month, it is still building a good payment history.  Carrying a balance is actually losing money, which is not worth it at all.

creditkarma.com is a great site about learning how to improve your credit score.  It breaks down all the parts of a credit score and shows how you are doing.  You can even simulate what would happen to your credit score if you changed certain things.  I just calculated that carrying a $1000 balance on my credit card would lower my credit score about 4 points.  credit karma has drawbacks - it only shows your TransRisk credit score (a proprietary score from TransUnion), is only based on your TransUnion report, and gives you a bunch of ads for balance transfer options that will "save you money".  But if you ignore the ads and just use the credit tools, I think it's a great site.

[phunluvin82]

Jan 22, 2013 14:40:17 GMT -5 al dente said:

I've tried that reason penguin! He likes to know the reason behind doing something for everything, no matter what it is.

When I bring up the interest aspect he has a low rate so last year he paid like $80 over the whole year, so he's very "oh it's not a lot of money..." He's very money comes, money goes no reason to stress over it mentality. It drives me crazy, because I'm probably on the stingy side of money things, but he lets me control the finances for the most part with no question.

His parents are also terrible with money, but got very lucky so it was always ok. I think he's use to it working out so doesn't see the reason to be proactive? If that makes sense? Anyways, like I said he pretty much lets me control the finances, and this isn't a huge issue or anything. Just something that was on my mind!

Omg, this is my H's exact attitude and it drives me CRAZY.  I'm just more uptight and type A then that...I would like to not stress, but I hate the feeling of knowing we could be doing better than what we are.

[Deleted]

Jan 22, 2013 14:08:39 GMT -5 al dente said:

Sorry, yes I'm saying he lets interest accrue. He doesn't use it every month, just for big purchases like plane tickets, furniture, etc things that are a few hundred dollars. Then he'll make $100-200 payment a month, but its never totally paid off. Does that make sense?

Yes, that makes sense in your explanation - but it makes NO financial sense.

I wonder how these myths get started?  (Banks, perhaps

No way is he right.  He's paying the bank interest on something he could have gotten at cost, had he paid in cash of paid off the card.  How is this a good thing?  Where is the source for his mythical view that keeping a balance helps with credit?

Good on you for checking and setting him straight...might just want to see what other financial myths he has fallen victim to!

[phunluvin82]

Jan 22, 2013 14:59:34 GMT -5 @shoegal said:

Jan 22, 2013 14:08:39 GMT -5 al dente said:

Sorry, yes I'm saying he lets interest accrue. He doesn't use it every month, just for big purchases like plane tickets, furniture, etc things that are a few hundred dollars. Then he'll make $100-200 payment a month, but its never totally paid off. Does that make sense?

Yes, that makes sense in your explanation - but it makes NO financial sense.

I wonder how these myths get started?  (Banks, perhaps

No way is he right.  He's paying the bank interest on something he could have gotten at cost, had he paid in cash of paid off the card.  How is this a good thing?  Where is the source for his mythical view that keeping a balance helps with credit?

Good on you for checking and setting him straight...might just want to see what other financial myths he has fallen victim to!

This is actually a really common misconception.  If you google 'myth credit card balance' a ton of articles will come up.  I once had an argument with a coworker who absolutely refused to believe that you wouldn't have a higher credit score by keeping a small balance on the card...she was always paying hers down to $20, and then continuously leaving $20 on there to 'help her score.'  At least not a lot of interest accrues on $20...but I really have no clue where so many people get this misconception!

[aurora]

Jan 22, 2013 15:10:00 GMT -5 al dente said:

...
Before we got married he had NEVER had a savings account and when I mentioned it he was all "Whats the point of that? You just keep it all in your checking no need for more accounts" I straightened that one out real fast! haha. 

To be fair, a savings account isn't quite as big a deal right now than it used to be when we used to earn interest on our bank accounts. I think our current rates are something like 0.5% on savings and 0.3% on checking, and neither have any fees, so I wouldn't put that into quite the same category as carrying a balance on a credit card.

[awkwardpenguin]

Jan 22, 2013 15:44:00 GMT -5 phunluvin82 said:

Jan 22, 2013 14:59:34 GMT -5 @shoegal said:

Yes, that makes sense in your explanation - but it makes NO financial sense.

I wonder how these myths get started?  (Banks, perhaps

No way is he right.  He's paying the bank interest on something he could have gotten at cost, had he paid in cash of paid off the card.  How is this a good thing?  Where is the source for his mythical view that keeping a balance helps with credit?

Good on you for checking and setting him straight...might just want to see what other financial myths he has fallen victim to!

This is actually a really common misconception.  If you google 'myth credit card balance' a ton of articles will come up.  I once had an argument with a coworker who absolutely refused to believe that you wouldn't have a higher credit score by keeping a small balance on the card...she was always paying hers down to $20, and then continuously leaving $20 on there to 'help her score.'  At least not a lot of interest accrues on $20...but I really have no clue where so many people get this misconception!

Actually, when you carry a balance at all, the interest is charged on the "average daily balance" of your card.  So say you put an average of $1000/month on the credit card, and pay it down to $20 each month, you'll be paying interest on the average of what was on the card each day of the month, or about $500.

[Susie]

Jan 22, 2013 14:08:39 GMT -5 al dente said:

Sorry, yes I'm saying he lets interest accrue. He doesn't use it every month, just for big purchases like plane tickets, furniture, etc things that are a few hundred dollars. Then he'll make $100-200 payment a month, but its never totally paid off. Does that make sense?

I understand what you're saying, but it's a ridiculous strategy to pay interest on a balance if you have the money to pay it off.

[Deleted]

There's probably a marketing manager at each ank tasked with keeping that myth alive...I'm so cynical!

I'm glad you're able to gut check your hubby (and balance out the perspective of his parents!).

It would drive me nuts to throw away $80 a year just on interest. I mean, that is a REALLY nice dinner out or 10% of a new pair of Blahniks, come on people!

[heyrebekah]

Jan 22, 2013 14:04:49 GMT -5 LoveTrains said:

But I would never log onto my credit card and pay it off so that the balance was totally $0.

I do this all the time. I have great credit.

I think the idea of leaving a balance on for your credit is a rumor perpetuated by the cc companies. It's jut plain stupid.

[phunluvin82]

Jan 22, 2013 16:03:22 GMT -5 awkwardpenguin said:

Jan 22, 2013 15:44:00 GMT -5 phunluvin82 said:

This is actually a really common misconception.  If you google 'myth credit card balance' a ton of articles will come up.  I once had an argument with a coworker who absolutely refused to believe that you wouldn't have a higher credit score by keeping a small balance on the card...she was always paying hers down to $20, and then continuously leaving $20 on there to 'help her score.'  At least not a lot of interest accrues on $20...but I really have no clue where so many people get this misconception!

Actually, when you carry a balance at all, the interest is charged on the "average daily balance" of your card.  So say you put an average of $1000/month on the credit card, and pay it down to $20 each month, you'll be paying interest on the average of what was on the card each day of the month, or about $500.

Yes, that's a good point...too bad I didn't think to tell her that, lol!

[lys]

Jan 22, 2013 14:02:20 GMT -5 gogreengowhite said:

You are right. You should use it, but pay it off each month. There is no reason to not pay it off if you have the cash sitting in your checking acct.

You do NOT need to carry a balance to build good credit.  You are better off financially to pay it off in full each month.
Using 30% of your allowable limit is also not wise - keep it to 15% and lower to help your FICO score.

[Deleted]

Jan 22, 2013 14:04:49 GMT -5 LoveTrains said:

But I would never log onto my credit card and pay it off so that the balance was totally $0.

I'm curious, but is there a reason why? my boyfriend logs on periodically throughout the month and pays the bill in full so his debt to credit ratio is stellar and his credit score is higher. 

[pugz]

why would you want the interest?? that's nuts. Pay it off in full every month, carrying a balance makes no sense