There are many misconceptions about credit cards. We are here to help you navigate all your credit card concerns and questions.
One common misconception is that you shouldn’t pay credit cards off each month. This is completely untrue. There are no benefits to leaving money owed at the end of the month.
It’s best for your financial health to pay your debt in full every month. Your credit score will benefit, as well.
Do Credit Card Companies Like When You Pay in Full?
Though companies make money on interest, they prefer full monthly payments. This shows them that you are responsible with their money.
Most establishments prefer to keep responsible borrowers rather than earn interest money.
Perks of Paying Monthly
Making full payments has many benefits. Most importantly, it increases your credit score. Your credit score is a reflection of your ability to repay debt.
You also preserve your money when you pay your card in full. Paying in full means you avoid accruing interest. You will only have to pay the initial balance.
Operating this way means you essentially have a debit card with perks.
Consistently paying off your debt can also increase your perks. Your card company may increase your borrowing limit. You may also become eligible for cards with better cash back or rewards.
Be Cautious of Your Utilization Ratio
You may want to pay in installments if your utilization ratio is high. This term refers to the percentage of your credit limit you are using. You should only use about 30% at a time.
For example, with a limit of $3,000, try to owe a maximum of $1,000. Pay down this balance before you continue to use your card. Keeping a low utilization ratio helps your credit score.
How Does Paying Your Card Off in Full Affect Your Credit Score?
Good borrowers use their credit cards but pay the money back quickly. The more frequently you can do this, the better your credit score.
Leaving money owed or paying late can impact your credit score. Your score can go down after just one incident. Be careful to pay your bill entirely to reap the rewards.
When Would You Not Pay Your Card in Full?
There are a few scenarios where you shouldn’t pay your card in full. It’s best to pay off your debt monthly.
However, this isn’t always possible. Some people need a few months to pay back what they owe. Do the best you can—sometimes, carrying a small balance is unavoidable.
You may also delay paying in full if there’s a problem. If you see questionable charges, contact your card company. You shouldn’t have to pay for fraudulent or incorrect charges.
If this happens, call right away. You don’t want to keep a fraudulent balance very long. The company should address it immediately.
The Bottom Line
In general, try to pay your bill in full monthly. It benefits you, your finances, and your credit standing. You’ll be able to receive more credit to help meet your needs in the future.