Should You Carry a Balance on Your Credit Cards?
Mar 12, 2023Credit cards can be a great tool for making purchases and building credit, but there's a lot of misinformation surrounding their usage. One common myth is that you should use your credit cards and pay off the balance immediately. However, as a credit and funding expert, I'd like to debunk this myth and provide some insights into managing your credit card usage and maintaining a high credit score.
Why You Should Wait for the Statement to be Generated
Waiting for the statement to be generated is crucial to managing 35% of your FICO score - payment history. The credit bureaus and creditors report once every month on a specific date, and if a statement hasn't been generated, the credit bureaus will not register any payment. Therefore, if you pay off your balance immediately, you won't have any payment history to report. This could negatively impact your credit score and make it more difficult to obtain credit in the future.
Debunking Myths About Maintaining a Balance on Revolving Accounts
Another common myth is that maintaining a balance on revolving accounts is necessary for a high credit score. However, this is simply not true. Once the statement is generated, the balance can be paid off in full, and maintaining a balance is only necessary for the highest past balance, which is already recorded in the statement. I advise following the 30-50 rule to maintain credit card usage and not putting the account at risk of lower limits or closure by continuously having a zero balance. This rule recommends using no more than 30% of your credit limit and paying off at least 50% of the balance each month.
The Importance of Understanding Credit Card Usage
Credit card usage can be confusing and overwhelming, but it's essential to understand how to use them correctly. Waiting for the statement to be generated, paying off balances in full, and following the 30-50 rule are all key factors to maintaining a good credit score. It's also important to use credit cards responsibly and not overspend beyond your means. Credit cards can be a useful tool when used correctly, but they can also be a source of financial stress when misused.
Conclusion
In conclusion, credit cards can be a great way to make purchases and build credit, but it's crucial to understand how to use them correctly. Waiting for the statement to be generated, paying off balances in full, and following the 30-50 rule are all important factors to maintaining a good credit score. By investing in your financial education, you can take control of your financial future and achieve your goals. Don't hesitate to reach out to us to learn more about how we can help you empower yourself through financial education.
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