Best to pay in full on CC each month or leave a small balance???

[ilovemycaitybug]

My husband and I are in disagreement as to what is the best way to build good credit once we are discharged (and a bit afterwards, just to be credit card debt free for a while)...

He says leaving a balance on the card is the best way to rebuild credit.

I say paying in full each month is the best way to rebuild.

What have you found to be true?

[FilingOnMyOwn]

Utilization is the key here. By paying your bill in full every month, you essentially utilize 0% of your available credit. Which maximizes your credit score while still reflecting a payment was made.

Not paying your bill in full, but always paying your minimum on time, is exactly what the credit card companies want. Which may help increase your credit lines with them directly (the one that you owe money to) yet will decrease your fico score due to a higher utilization.

It is good to have a monthly payment reflected on your account. Which will already happen if you use the card regularly, so no need to carry a balance.

If you don't plan to use the card again immediately after you obtain it, you could charge up $100 or so and just pay the $10 or $20 monthly minimum to establish payment history.

[CATCHMEIFYOUCAN]

I have a dumb question to add: When one doesn't pay their balance in full but just the minimum, does the creditor charge interest on the remaining balance come the next billing cycle? I really can't remember !

Thanks, CMIYC

[poorme]

Another key point to ask is what goal are you pursuing in the name of "improving my credit"? Is it to get more credit, by CLI's on existing accounts, or to ADD more accounts, or to improve your scores by better managing both? Depending on your situation, EITHER approach is best. One might use the 'keep a balance' method purposely for awhile, then shift to PIF - it's like shifting your 401k funds to take advantage of market trends - sometimes you're better off in stocks and sometimes in other strategies. The scores will get better over time. Time is all we have. Figure out how to use yours best.

[emoney]

For rebuilding credit paying as agreeded means paying the mimium to the balance in full. Not paying in full you get to pay 15 to 25% interest which in not good for your $$$ health.
Creditors report your payment activity usually monthly on some date in the billing cycle. The date is usually the day of closing, so you will show some money owed. As long as that % of what is owed vs. to the total credit line is under 40% that will help. Using less than 33% is even better.
Time, number of accounts and types of credit are used in the Fair Issac score calculation. Banks are best and are the hardest to get credit from, so that is why what they report carries the most weigth for your FICO score.
Regards,
emoney

[FilingOnMyOwn]

I have a dumb question to add: When one doesn't pay their balance in full but just the minimum, does the creditor charge interest on the remaining balance come the next billing cycle? I really can't remember !

Thanks, CMIYC

Most banks give you the first billing cycle of charges as a grace period, in the 20-25 day range, where no interest will accrue if paid in full. If you carry a balance after that, you're paying interest on it.

Like Emoney says, by paying only the minimum balance and not paying in full, you are allowing them to charge you that interest.

[tradewiz50]

I say paying in full each month is the best way to rebuild.

You are correct.

[tradewiz50]

I have a dumb question to add: When one doesn't pay their balance in full but just the minimum, does the creditor charge interest on the remaining balance come the next billing cycle? I really can't remember !

Thanks, CMIYC

Yes interest acrues if the balance is not paid in full by the payment due date. They call them finance charges.