Expert: Gary Lambert - 11/20/2009

Question
QUESTION: is it better to carry a 30.00 balance on my two credit cards or pay off the 30.00 balance and pay them off every month I have heard two different opinions.

ANSWER: Hi Daniel,

Regarding credit cards, your maximum credit score will be achieved by keeping a balance on your card that equals 25% of the line of credit.  In other words, if your card has a credit limit of $200, keep a $50 balance.  If your monthly payment takes you below the $50, use the card for a purchase that will bring it back up to the $50 balance.  ALWAYS make the payment a couple of days before the due date.  Otherwise, late fees could become a problem.

Another tip to having a great credit score is to establish at least three, preferably four open accounts and maintain them on an ongoing, consistent basis.  These can be any combination of revolving (credit cards) or installment accounts (auto loan, mortgage.)

If followed, the previous two paragraphs will lead you down the path to the highest possible credit score.  If you need any other help, please ask, and if this has been of help, your taking the time to rate the answer would be appreciated.  Have a great day!  Gary

---------- FOLLOW-UP ----------

QUESTION: if i want to build my score should i never pay off my two cards or should keep the balance below 25% for the next two years?

Answer
Hi Daniel,

Two years?  "Ongoing and consistent" means forever.  When you stop using credit, your score will drop.  If you pay off a credit card every month, your credit score will NOT be as high as it could be because the scores are determined by a fancy mathematical algorithm that is set up to reward the ongoing, consistent maintenance of your credit accounts.  Again, keeping them open, but paid off will NOT help you build your credit score.  Also, the key to the algorithm is 25%, so try and keep your balance at 25%, NOT below 25%.          

It's like losing weight, Daniel.  Once you lose the weight, you have to keep up the eating habits that helped you lose the weight or the weight will come back.  So, once you've achieved the score you want, you have to maintain the accounts as if you were maintaining your weight.  It may take a shift in your paradigm, Daniel, but you can do this.   

Adopt this lifestyle and your credit score will always be at its maximum.  Daniel, what is your goal?  What are you trying to accomplish here?  What is your credit score now?  Where do you want it to be?  I'd like to help you achieve your goals.  My time and knowledge are available to you for free.  I'm not on here to make money, I'm here to help.    

So, get yourself three or four accounts, use the 25% rule, and maintain them for as long as you want a high score.  Let me know how I can help.