Should I Pay My Credit Card Off Each Month?

It’s always a hot topic and yet it is still one of the first questions people ask when they talk about owning their credit cards. MyFICO doesn’t hand out their magic formulas and the best you can do is to NOT use it at all if you’re worried about credit. But if you HAVE to use it, try this…

It’s a bit vague, but we do know that points are given or taken away based on the amount of available credit used by a person.

Common senses says that using the maximum amount on your credit card and paying only the minimum each month will likely knock your score down.

Using a large percentage of your available credit each month, even when you pay the bills on time each and every time, can detract points if you are carrying a high balance at the time your credit history is scored.

So it depends on what you’re trying to do with your credit. Are you trying to get a loan?

If so, do you NEED to use the credit cards? If not, leave them alone.

Your FICO score is a trade secret. FICO isn’t going to tell you exactly how it is computated, or else who would pay for their service?

It’s just like cooking for chefs. Nobody gives away their secrets as then why would a restaurant goer visit that chef’s restaurant when they could “eat at Joes”?

What we DO know about MyFICO is that they offer this info in regards to your score:

35%,- punctuality of payment in the past (only includes payments later than 30 days past due)
30% – the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
15% – length of credit history
10% – types of credit used (installment, revolving, consumer finance)
10% – recent search for credit and/or amount of credit obtained recently

Keep in mind that your credit score is a “snapshot” of your credit report on any given day. So, in theory, you could have perfect credit 2 days after you bought 3 new cars and a new kitchen. They snapped the snapshot prior to that, or it hasn’t hit yet. Most lenders report to the credit bureaus every 30 days. If your credit report is scored right BEFORE your monthly credit card bill is due and you’ve used a significant portion of your available credit, your score will likely go down.

On the flip side, if the report is pulled right AFTER your monthly credit bill and you’ve tacked on some new toys, you’ve probably got 30 days to clear it up if you’re looking to stay clean on the debt side of things.

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  • Bah, way to suck me in with that title. I was like “is he serious, yes”. But obviously you knew the answer already. I try to use my credit cards a little every month so my credit will be good when I need it, plus i get 1% back so it doesn’t hurt to use them. I have seen those percentages a few times before but most people aren’t as interested in finances and stuff like I am so it is good for them to see it. Everyone could use a good credit rating.

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  • Brain

    I always wonder this and never have any idea, but this makes sense if FICO judges on if you have any debt. Magic formulas are tough to gauge, but clear to get around if you just don’t use it! Good info for a new house buyer like myself! thanks!

  • I do use a secured credit card which is controlling my credit limit and desire to use it. I only use it for situations such as traveling (ie. plane tickets, car rental, etc…) so I tend to pay the balance of my purchase within 2 weeks instead of waiting for the bill to come around. It seems to have helped my credit score but then again, like you said, the formula is not an exact science.

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  • J

    Having gone from batting just under 500 (with a car loan at 22.5%!) to the 700 club, there is one important thing I learned about the FICO. The main judgement about paying is a tiered scale; No payment due, Pays less than minimum, Pays minimum, and Pays more than minimum. You can probably guess which tier you want to be in. Over the last two years, I’ve found there isn’t really magic involved, just a set of vaguely defined rules. Once you figure those out, you know how to play the game.

  • Brian

    I used to work as a bank teller in a credit union. I got a credit card on about my 18th birthday when I started working there. The tellers told me that I should carry a balance for the first month of the card (or at some point in my history) to raise my credit score more. This shows that your card is not just a “debit card” meaning that you pay the amount off in cash every month, but rather that the lender does see income from your use.

    I don’t know if this is true but I’ve done it on every card I ever got. Can’t check my score today but the last time I checked it was north of 700.

  • It really depends on how disciplined you are. If you are not paying interest every time you pay it off and you get some sort of reward, say airmiles or points, it is worth doing. But if there is no benefit, then I would choose a debit card and be in control of every thng I spend, and only spend what I actualy have available.

    There is one thing that is certain, if you dont pay off your cards, you will pay intrest and possinly high interest, that makes your purchases more expensive than they need to be.

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  • Pissed Consumer

    Unsure how old this article is, or if there were additions to the mix that go towards the Credit Score, but I recently saw an item that said something like “Number of Credit Cards”, and the explanation indicated that you have an “A” score in this Category if you had 21 Credit Cards, and that blew my mind – talk about a nonsensical system for scoring your Credit!!!