Have you bought into the myth that carrying a credit card balance will help improve your credit? A new study of US credit card holders shows you are not alone in believing. But in actuality, this fallacy only works to support another dangerous cliche your mother may have scolded you with growing up, “if everyone jumped off a bridge would you do it too?”
According to a new report by CreditCards.com, more than 1 in 5 credit-card users, or 43 million Americans, carry a balance — or pay the minimal to credit-card companies, thinking it will help boost their credit scores. However, carrying a balance isn’t one of the factors that go into creating a FICO credit score.
Payment history, amounts owed, duration of credit history, credit mix and new credit are the only factors rating businesses consider when determining credit scores. Despite these facts, Creditcards.com senior business analyst Matt Schultz says that the”myth” of the usefulness of carrying out a balance still remains.
Not surprisingly given the lack of emphasis on financial planning and knowledge in the US public school system, younger consumers are more inclined to carry a balance, according to the report, together with 28 percent of millennials perpetuating the myth. Although Schultz said that living through the 2008 Great Recession has made millennials “financially careful,” he doesn’t believe that has made them more financially educated compared to other age classes.
The study also found that 27 percent of cardholders with no college degree have done this, versus 12 percent having a college education. And 30 percent of credit-card users making less than $50,000 a year have erroneously sought to improve their credit scores by taking a balance, in comparison to 19 percent of those earning greater than $50,000.
About 42 percent of the surveyed confessed to paying a credit-card statement overdue. From this group, 71 percent said they paid late because they forgot, were occupied or were traveling. Paying the invoice a couple of days late won’t hurt credit scores, but being significantly late will.
Instead of carrying a balance, credit-card holders should focus on paying down their debt and decreasing their credit utilization, experts advise. If you are looking to raise your credit score, financial planners recommend asking your credit card company to increase your credit limit, because credit use is a big part of your overall credit rating.