Does carrying a balance help my credit score?

Ask the Experts: How long should I carry this balance?

We would like to pay off a purchase on a zero interest credit card and would like to know if there is a certain amount of time that we should wait in order for this credit purchase to positively affect our credit score? For example, if we pay it off in the next month after the purchase, would this show up on the credit report or should we wait four or five months? Thank you. –Erica

Hi Erica,

There’s a fairly common misconception that you need to carry a balance for a certain period of time in order to positively impact your credit score. The truth is that you do need to use credit consistently and wisely in order to build a positive credit history, but you don’t need to carry a balance.

As we’ve discussed elsewhere (including our spiffy new eBook Getting the Credit You Deserve), your credit score is a mathematical representation of your creditworthiness. In most major scoring models it’s determined by five main factors:

  • Payment history
  • Amount owed to creditors
  • Length of credit history
  • Amount of new credit
  • Types of credit use

Length of credit history refers to how long you’ve had your accounts, not how long you’ve been carrying a balance. Ultimately, the main purpose of credit reports and credit scores is to help future lenders understand how likely you are to pay back the money they’re considering loaning you. Paying them back immediately can only help you.

So if you’ve got the ability to pay off the interest-free account, do it today. You may want to check your contract with the lender first, just in the off-chance that there’s any language in there regarding fees or penalties for paying off your debt too soon. Otherwise, pay it off and be done with it.

Good luck!

That was brief. Let’s answer another question:

Does it make sense to borrow money to pay recurring bills (rent, utility bills) in advance on the theory that it frees up money later on? –Bryan

Hi Bryan,

The short answer is no.

The long answer is super duper no.

Unless I’m misunderstanding your question, the thought is that you would borrow money (presumably from a financial institution) and then use that money to pre-pay certain fixed expenses (such as your rent). Unfortunately this wouldn’t free up money later on, because you would now be paying back your loan (plus interest), rather than just paying your (interest-free) rent and utilities. This would cost you money and provide no additional financial flexibility.

So, again, super duper no.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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