Let’s Ask ESSER: Is carrying a balance on your credit card detrimental to your credit score?

Q:

I’ve heard that carrying a balance on your credit card is detrimental to your credit score, even if you pay your on time monthly payments. Is this true?  N in Tosa

Since 1982, multi award winning attorney Todd C. Esser has been leading the field, serving the community, and helping consumers just like you achieve success through trying financial times.

A:
The importance of high credit score should not be underrated. According to the Consumer Federation of America’s sixth annual credit score survey, having a low credit score – compared to a high one – will typically cost you $5000 additional dollars, on a $20,000 60 month auto loan. While using your credit cards to build your credit rating can be a good thing, having too high of a debt to income ratio is not. Additionally, missing a payment, or not paying balances in full at the end of each month, will find you incurring interest charges and late fees. So the short answer is, if you can be responsible, carry less than 7% of your income in credit card debt, never miss a payment, and don’t mind paying interest charges then yes, utilizing your credit cards to boost your credit rating is a good thing. If you are able to do all of those and pay your balances off at the end of each month, even better…you can still build your credit, and you avoid paying interest. You are proving to lenders that you would be a good credit risk, even though you’re not carrying a balance.

I’ve attached two articles to give you some additional information and ideas:

http://blog.readyforzero.com/does-carrying-a-balance-help-or-hurt-your-credit-score/#.V18aDLsrLGI
http://experience.usatoday.com/weekend/story/lifestyle/2014/10/13/10best-ways-to-improve-your-credit-score/17190731/

Looking forward to your good financial health!

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