What’s better – carry balances or pay statements in full?
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I’m 18 and just starting to build my credit. I have a Discover student credit card with a $700 limit, and I want to build good credit so I can turn it into a regular Discover CC. I’d also like to apply for a car loan in the future.
What’s better with respect to building credit – carry balances on the card? Pay the statement is full? Pay the statement is advance before it is issued?
Thank you
Pay the statement if full AFTER you get it
Credit cannot be build overnight. Good credit is build month by months. It takes at least two years to build reasonable credits, and years to build excellent credit.
What actually builds credit is a steady stream on timely payments. For best results – use the credit card for normal expenses, wait for the statement and pay it in full. Each month the statement is reported as a balance to the credit bureaus, and assuming it is paid on time (either the minimum payment or in full) your credit score will inch up a bit.
If you pay off the balance BEFORE the statement is issued, your statement will show a zero balance, and that same zero balance will be reported to the credit bureaus. This may sound good, but it’s actually bad because a $0 balance has the same effect as not using the card (with respect to building credit). This strategy is good only for a month or two before applying for a car loan or a mortgage. See paying-credit-card-before-statement.html for more information.
As long as you pay at least the minimum payment on time, it will be reported to the credit bureaus as an on time payment and will build your credit. However, if you don’t pay the balance in full every month, you will be charged interest for what you carry.
There is absolutely no benefit to paying interest with respect to credit building. In fact, if you carry balances of more than 30%, it will hurt your credit.
Summery – The best way to handle a credit card is to use it for regular purchases, wait for the statement and pay it in full every month. That builds credit and avoids unnecessary interest.
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