A CFP Explains Why Carrying a Credit Card Balance Won't Help Your Score
One of the most expensive pieces of financial advice in America is also one of the most common: Carry a credit card balance to build credit.
An 18-year-old college student recently took that advice to Reddit after hearing it from his mother. Commenters quickly pushed back.
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Financial experts say carrying a balance does not help a credit score and can cost cardholders money in interest.Here's what first-time cardholders need to know.
Why the "Outstanding Balance Helps Your Score" Myth Persists
Many people still believe carrying a credit card balance helps build credit.
Christopher Stroup, a certified financial planner and founder of Silicon Beach Financial, said the misunderstanding often comes from how credit card activity is reported.
“Many people confuse credit utilization reporting with needing to carry debt,” Stroup said. “Because issuers report balances monthly, a small balance can show activity. That leads to the myth that paying in full ‘doesn’t count.’”
But that’s not how credit scoring works.
“In reality, credit scoring rewards usage plus on-time payments, not interest-bearing debt,” he said.
Use Isn’t Debt
Most people treat credit card use and credit card debt as the same thing. They’re not.
“Responsible use means charging expenses, staying within your limit and paying the statement balance in full on time,” Stroup said. “Carrying a balance means unpaid debt accrues interest.”
He explained, “One builds credit history efficiently; the other increases cost without improving your credit score in any meaningful way.”
Paying in Full Works
Paying in a balance in full each month doesn’t mean credit building stops there.
Instead, paying off the monthly balance reports positive activity to credit bureaus, including on-time payments, consistent usage and low utilization when managed well.
“Over time, this builds a strong payment history, which is the most important credit score factor without paying unnecessary interest to lenders,” Stroup said.
What Really Matters
If carrying a balance doesn't help build credit, what does?
Stroup said first-time cardholders should focus on a handful of factors that have a much bigger impact on their credit score.
“Focus on payment history, keeping utilization ideally below 30% (lower is better), maintaining a long-standing account and limiting hard inquiries,” he said.
That's a very different checklist than simply carrying a balance.
“Consistent, on-time payments combined with disciplined spending habits matter far more than carrying debt month to month,” Stroup said.
Skip the Interest Trap
Believing the myth can do more than add a few dollars in interest charges. In some cases, it can make it harder for first-time credit card holders to get ahead financially.
“The biggest mistake is intentionally carrying a balance to ‘build credit,’ which leads to unnecessary interest costs and potential debt cycles,” Stroup said.
Instead, he recommends automating full statement payments, keeping utilization low and treating a credit card as a payment tool rather than a borrowing mechanism.
For first-time cardholders, the better move may be surprisingly simple: Pay the bill on time, pay it in full and let consistency build the credit score.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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