Thursday 17 August 2017

'Does my credit card balance help my credit rating? Should I pay it off in full every month?'

 

Part of developing a strong score is to be able to demonstrate your ability to repay outstanding balances (stock image)
Part of developing a strong score is to be able to demonstrate your ability to repay outstanding balances (stock image)

Kevin Johnson

Question: I've heard that keeping a balance on my credit card every month helps my credit rating. Is that the case or is it better to pay off my credit card in full every month? Andrew, Dublin 7

Answer: This financial falsehood has been doing the rounds for some time now but in short, no, you do not need to keep a balance on your credit card to get a better credit rating. You need to remember that you are paying hefty interest on any outstanding balance on these cards, so if you can clear it every month then you should. Plus, if you make a credit application for a mortgage a lender will look favourably on the fact that you did clear the balance when you could afford it.

The confusion around this might lie in the fact that some people pay off their credit card with every transaction made - a type of pay-as-you-go approach which does not do their credit rating any favours. For example, if you use your credit card to do some online shopping, then 24 hours later you use your personal fund to pay off your card so your balance immediately goes to zero.

Part of developing a strong score is to be able to demonstrate your ability to repay outstanding balances but if your statements constantly just show zero balance then the credit bureau can't see your proven ability to repay.

Kevin Johnson is Chief executive of the Credit Union Development Association

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