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RocketSquid's avatar

Does payment amount make a difference on your credit rating?

Asked by RocketSquid (3465 points ) January 28th, 2013

I have a credit card I’m fairly close to paying off. However, I hear all the time that it’s a great idea to leave a balance on there and pay interest to increase your credit score.

Does the amount of interest make all that much a difference? Would paying $10 a month give me the same boost as paying $100? Or would I be better off in general just closing out the damn thing?

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14 Answers

TheobromosHumper's avatar

Wrong wrong wrong wrong wrong.

Did I mention that is wrong?

Pay it off. If you pay it off in full each month, and do it on time and regularly, you get just as good or maybe even a better credit rating. There is no reason to leave money on the table and money paid for credit card interest is the most expensive kind of borrowing there is. Do not do it. If you value your future, do not waste money that way.

Worry about your finances, not your credit rating.

KNOWITALL's avatar

I was told to keep balances low but to definately keep all available credit lines open to increase credit rating. I still paid mine off though and actually closed all open accounts due to the financial crisis and identity thefts.

Pachy's avatar

@TheobromosHumper is right, right, right. Pay it off every month. In fact, set a limit for yourself of what you can safely pay off every month. You’ll be doing both your credit rating a big favor and developing an important habit for the future.

CWOTUS's avatar

“Canceling an account” can affect your credit rating negatively, as it sends a message that “I can’t handle credit” – which for many people is absolutely true!

However, paying the balance in full is not at all a negative sign.

JLeslie's avatar

Pay your credit cards in full! The amount you pay in interest and penalties not paying it off completely every month is criminal.

Your credit rating score, well part of it, has to do with how much open credit you have as a ratio to how much credit you have used. For instance, if your credit card limits equal $5,000 and you have used $4,000 your credit rating will be worse than if it was zero money used. Or, even $1,000. Open credit and paying on time shows creditors you don’t charge just because you can, and it shows you pay your bills.

Think about it logically, people who are less careful with their finances tend to spend everything they can and pay as a little as they can so they can keep spending.

JLeslie's avatar

@CWOTUS Cancelling the account also lowers credit because it reduces the amount of available credit.

KNOWITALL's avatar

@CWOTUS Unfortunately some cards like Best Buy, cancel automatically if you pay it off, which I didn’t know. :(

JLeslie's avatar

@KNOWITALL I have never heard of such a thing. I am not saying you are wrong, just never heard of it. A lot of cards to automatically close if they are not used. Usually it is after 2 years, but can be less.

KNOWITALL's avatar

@JLeslie Maybe I did miss some kind of deadline, but I’d think they’d let you know before cancelling with the amount of money we spent.

We think they cancelled us because they made no money off of us with the whole no interest for twelve month deal. Still totally worth it either way- lol

Tropical_Willie's avatar

@KNOWITALL They’ll drop you like a hot potato if you are late or miss a payment.

Judi's avatar

A part of your FICO score is based on what you owe vs your available credit. If you have a high available credit and low balances your score goes up. If you close the account your available credit goes down and so does your score.
I still closed my Bank of America accounts because they’re just ass holes.
How FICO scores are calculated

JLeslie's avatar

@KNOWITALL Sometimes it is very easy to get the account turned back on. You don’t have to go through the application process again, just give them a call and they send you a new card.

wundayatta's avatar

They make plenty of money on you even if you pay off in full each month. Don’t forget that credit cards charge between two and four percent to the merchants for each sale.

Once, I was late with a payment to Chase. I asked them to remove the late charge, since we always pay in full. They refused. I told them we’d leave, and we switched to Bank of America and Discover. Chase lost around $1500 a year because they wouldn’t remove a $40 late fee. Or maybe it was only $20.

They want consumers thinking they need to pay for a good credit rating, but it really quite the opposite. The less you pay them, the better your credit rating. You are paying them plenty even without paying extra fees. It’s just built into the cost of goods. Some portion of the goods you buy is transaction fees. Cash, too, costs money to handle and that’s built into the cost of the product.

Reduce your transaction fees and you will become richer. Doesn’t matter whether you are buying shoes or investing your 401K. Reduce your transaction fees and keep more of your money. Credit card interest and late fees are just pissing your money away for absolutely nothing. Doesn’t even help your credit rating.

downtide's avatar

Pay it off in full but keep using the card (in amounts that you can easily pay off) to keep it active. That is FAR better for your credit rating.

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