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If you’ve ever carried a balance on a credit card thinking it would help your credit score, you’re not alone.
About 43 million Americans, which is 22 percent of credit card users, have carried a balance to improve their credit score, according to a new CreditCards.com report. The report surveyed 1,000 adults across the United States in June.
Unfortunately, carrying a balance is not one of the five main criteria that makes up a credit score, though how close you come to your spending limit is.
“This is the cockroach of finance myths,” said Matt Schulz, senior industry analyst at CreditCards.com. “Impossible to kill.”
Carrying a balance could hurt you in other ways, however.
For one, carrying a balance means that you are subject to paying unnecessary interest. The average American has a balance of $6,375, according to a study by Experian. This from a year ago, and interest rates on credit cards have increased since then, as well. The national average APR is over 16 percent, up a percentage point from 2017, according to CreditCards.com.
“It’s painful to know that so many millions of Americans are essentially attempting to pay their card issuers to improve their credit scores,” Schulz said. Even if this were true and carrying a balance could improve your credit score, the boost would not be worth paying extra interest, said Schulz.
In addition to burning a hole in your wallet, having a balance could also hurt your score if it grows too much. One of the items that does comprise your credit score is your utilization rate, or debt-to-credit ratio. The higher the amount of debt you have relative to your total amount of available credit, the worse this rate will be.
The other big factor that goes into determining your credit score is payment history.
Paying on time is an issue for many credit card holders; over 40 percent have paid a bill late, the CreditCards.com report found. Nearly two-thirds of those were for no good reason such as they forgot, were busy or travelling.
The report looked at late payers by age, race, socioeconomic status and household size. Women, minorities and parents with young children were found to be the most likely to pay late. Millennials are also the most habitual late payers with 1 in 10 saying that they’ve paid late five or more times.
While money was a factor in paying late, having more of it didn't seem to increase financial responsibility; 35 percent of late payers said they didn’t have enough money to pay on time, but higher earners were more likely to admit that they paid late because they were careless.
If you are looking to improve your credit score, Schulz says to be aware that you cannot game the system. To improve your score, the best things you can do are simple: Pay your credit card bill on time and in full every month.
He said that credit is a “marathon, not a sprint.”
“If you focus on the big picture and understand that you’re playing a long game, you’re going to end up doing the right thing,” Schulz said.
If you forget to pay bills on time, Schulz recommends setting up autopay for at least a portion of your bill.
“Because of technology, there’s really no excuse for being late for payments anymore,” Schulz said.
While credit can seem complicated, it doesn’t have to be, said Schulz.
“It’s about keeping your balance low, paying bills on time and not applying for too many lines of credit,” Schulz said.
After that? “Lather, rinse and repeat for many years.”
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