Why you should pay your credit card in full

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The myth still pervades society that credit cards are the credit score’s executioner. When friends and family see how many credit cards I’ve got, they can’t help but ask about the state of my credit. And I’m glad to tell them.

Credit cards do not hurt your credit score. In fact, they help it — IF you use them correctly. My credit score hasn’t deteriorated since I’ve started opening cards to collect miles and points. It’s actually improved. Yes, opening a credit card and receiving a credit inquiry on my credit report will temporarily drop my score by a few points. But a month or two later, after exhibiting responsible credit habits, it always climbs back up and usually exceeds my previous score.

I’ll explain a few essential credit card practices to maintain healthy credit.

Is it better to pay off your credit card or carry a balance?

Well, this question isn’t as simple as it sounds.

Under no circumstances should you carry a balance month-to-month. That is, you should never start your next billing cycle without having paid your card in full. This will prevent you from being charged interest, and it will also earn you several interest-free weeks if, for some reason, you cannot pay your balance in full at some point.

However, you should carry a balance during the month. It should be a meager amount, but you should have something on it for multiple days out of the year. If you subscribe to credit monitoring services like CreditWise from Capital One or MyFICO, you may receive alerts when you swipe your card for large purchases. That’s because when you use a large portion of your credit line, the “credit utilization” part of your credit score takes a hit.

We’ll cover more on these situations below.

Should you pay off your credit card after every purchase?

The answer is no. While the opposite may seem true, it’s good for credit bureaus to regularly see a balance on your card. When your balance fluctuates, it tells them that you know how to use credit responsibly. If you make a few large purchases and responsibly pay them off in a timely manner, that gives you brownie points with the major credit unions Equifax, Experian, and Transunion.

See, credit bureaus keep a close watch on each credit card account you own. They may check your balance every two or three days and update your profile accordingly. If you pay off your credit card after every purchase, your balance may be back to zero before the credit bureaus have a chance to record that responsible use of credit.

Anyone can open a credit card and throw it in a sock drawer. That doesn’t take any money-management skills. It’s fine to pay off your credit card a few times each month, but don’t pay them off after every purchase.

Will you avoid interest if you pay your card in full?

Absolutely! As long as your balance is paid before your next billing cycle, you won’t accrue any interest. Not only is this important, but the ability to pay off your card is a determining factor as to if you should even participate in the miles and points hobby.

You may have noticed the abnormally high-interest rates that accompany the best travel credit cards. The fees you’ll incur if you carry a balance month to month make credit card rewards a high-stakes game. If you fear you won’t be able to pay your balance every month, we recommend you not apply for travel credit cards. The money you’ll pay in interest and fees will offset the rewards you’ll earn from your spending.

Be honest with yourself about this. It can be hard to recover from debt on a travel card. If you’re relatively new to credit or think you may spend more than you earn, perhaps give yourself a trial run with a starter card from your local bank or credit union.

Will paying your card in full improve your credit score?

Paying your balance in full will not necessarily help your credit score. But what will boost your credit score is ensuring you keep your card utilization below 30%. Banks and credit bureaus love a low utilization (data points show that below 10% yields the best results for your credit score), so if you’ve just made a big purchase that eats up 40% of your credit line, it’s a good idea to at least pay down your card balance to 30% of your limit.

However, as stated above, paying your balance in full by the end of each billing cycle is super important because it prevents you from being charged interest. As long as you give the credit bureaus a chance to track your credit usage, your credit will improve. But you should absolutely pay your card in full each month.

Bottom line

So, is it better to pay off your credit card or keep a balance? The answer is:

  • Keep a balance for at least part of the month
  • Pay off your credit card in full before the end of each billing cycle

Credit bureaus want to know you can handle credit responsibly. You will succeed in the miles and points world if you keep your balances low (under 30% of your available credit) and pay off your credit card in full each month to avoid fees.

The most important aspect of travel credit cards is to avoid carrying a balance into the next billing cycle. You’ll lose more money in interest than you’ll gain in rewards for your spending.

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Featured image by Jason cox/Shutterstock.

Sarah Hostetler is a contributor to Million Mile Secrets. She covers topics on points and miles, credit cards, airlines, hotels, and general travel.

Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

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