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Will paying back the full balance on a secured credit card each month boost my credit score?

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Will paying back the full balance on a secured credit card each month boost my credit score?

Postby teiji » Thu Jan 24, 2013 12:09 am

This is the 4th month I will have a credit score (after turning 18) I understand a lot of the basics, but someone who used to work in finance told me that since I wouldn't be paying interest (since I would pay back the full balance each month) that i would not be boosting my credit since I am not paying interest even though the company reports to the credit bureaus. I would be using about 20-35% of my credit each month before paying it back in full.
teiji
 
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Will paying back the full balance on a secured credit card each month boost my credit score?

Postby dubg » Thu Jan 24, 2013 12:11 am

Well, you heard wrong. The balance should always be paid the following month. A credit score is based on a 12 month activity and goes up 5 to 10% per month providing you are paying on time. It takes 12 months for a fair score (620/659) and 24 for a good score (660/749).
dubg
 
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Will paying back the full balance on a secured credit card each month boost my credit score?

Postby cerin58 » Thu Jan 24, 2013 12:23 am

Paying back the full balance each month is the best thing you can do!

It's the proper use of credit cards.

However, since you don't have much of a loan, it has little effect on your credit score. The biggest effect is when you get the credit card in the first place Getting a credit card does lower your score, but using the card wisely soon brings it back up again. And, if your credit card balance goes up towards its maximum and you don't pay it off relatively quickly, it has a negative effect on your rating.

Generally, credit cards don't have much of an effect (even when you don't pay them off in full, but keep the balance low) on your credit rating.

Oh, if you want to boost your rating, then look at taking out a meaningful loan and pay it off on time - more effective than using a credit card.
cerin58
 
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Will paying back the full balance on a secured credit card each month boost my credit score?

Postby gearald » Thu Jan 24, 2013 12:37 am

As long as the company is reporting current payment activity to each bureau each month, this will help your score over time. That finance person may have tried to say that some companies have not reported 0 balances each and every month, thus showing no activity and in turn not helping your credit.

But you are doing perfect paying the cards down. If every you notice a company not reporting positive payment activity every month, leave a $5 balance on the card from month to month. You will end up paying an amount in interest, but that is a way to ensure they are reporting positively each month.
gearald
 
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Will paying back the full balance on a secured credit card each month boost my credit score?

Postby orsen » Thu Jan 24, 2013 12:41 am

You are doing the right thing. You should continue to do this. At the 6 month mark you should see some improvement, but even better at 12 months. At some point you will need other cards as this is key to a good score. It shows you can handle multiple payments! The best thing for you to do is to get a service like Credit Karma, which is free. Their score is not a FICO score, but it will help you to see how it all works out and it is good for tracking changes to your credit report. The site has much information which will be useful to you as you continue this journey! Also go to My Fico Forums and register there and read their brochure on credit!
orsen
 
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Will paying back the full balance on a secured credit card each month boost my credit score?

Postby adao » Thu Jan 24, 2013 12:43 am

What "someone who used to work in finance" told you is not correct. It is completely and totally wrong, which may be why the person no longer works in finance.

Whether or not you pay interest does not affect whether your credit score is boosted in any way, not even a little. The only things that matter are how much you owe, what your credit limit is, what your balance is, when you pay, whether you pay the required amount or not, etc. Paying interest does not boost your score any more than paying the same amount without being charged interest.
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