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Carrying a balance on your credit card doesn’t increase your credit score

Raising your credit score to where you need it to be for better interest rates is not difficult, but you must take the right steps. Continuously keeping a balance on your credit card is not one of them. The overall effect of carrying credit card debt costs you more than you realize.

The myth

There are several myths that some people believe. One is that if you carry a balance on your credit card, it will raise your credit score. Unfortunately, that is just not true.

The truth is that reducing your overall debt will raise your credit score. Consistently paying your bills on time each month will reduce your debt and raise your credit score. The credit bureaus need to see that you can be fiscally responsible and not use your charge cards simply because you have them.

The real cost of keeping a balance

Actually, the long-term effect of carrying credit card debt is that you will pay a lot more money in interest. Remember that each month you have credit debt you are paying interest on it. The average credit card interest rate is 17.73%. Of course, if your credit score is not the best, it means you are likely paying even more in interest.

Low debt-to-credit ratio

When you have a low debt-to-credit ratio, otherwise known as the “utilization ratio”, below 30%, it reveals that you are a responsible individual who can control your spending. It also shows that even though you have the ability to increase your debt, because you possess more credit cards that are not maxed out, you have not done it.

Paying your bills on time and consistently also reveals you are financially stable and trustworthy. This is the primary thing the credit bureaus look for.

When you apply for more credit, the company may turn you down simply because your credit cards are already maxed out. Or, you already have too high a debt-to-credit ratio, and the credit company is afraid you can’t afford to make all your monthly payments as agreed.

The factors in a credit score

FICO®, the agency that set up the credit score system, says that the single biggest thing you can do to raise your credit score is to pay all your bills on time. This activity is called “payment history”. This factor counts as much as 35% of your credit score. The second most important factor is keeping your debt to less than 30 percent of your credit limit. It counts for 30% of your score. The other three factors include how long you have had the credit (15%), new credit (10%), and the type of credit you have (10%).

The ideal way to use a credit card to generate the highest credit score is to start by eliminating your debt. Once it is eliminated, you simply pay off all new charges with each month’s bill. This will free up more money for other things you enjoy and build a better credit score.

Another way to overcome the effect of carrying credit card debt is to get help from BoostMyScore. BoostMyScore uses credit tradelines to help you quickly overcome a low score and boos your credit score fast. Using the piggybacking tradelines technique it pioneered over 12 years ago can help you get an immediate boost on your credit report, giving you a better chance at getting approved and for better terms.

Check out the credit tradelines simulator designed to help you select the tradelines right for you or contact a credit expert at BoostMyScore today!

Bill Airy

About the Author:

Bill Airy is the CEO and Founder of BoostMyScore. For over 12 years he has helped American consumers get a second chance at a better financial life by helping them to improve their credit score. He regularly publishes helpful content on this Blog to educate others about Credit Scores and best practices when trying to improve them.

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