Real Estate Community Forum

I currently have a credit card with a balance $3,000 dollars. I have enough money in my savings account to pay off the balance. I am very tempted to go ahead and pay off the entire balance with the hopes of increasing my credit score. However, someone told me I should leave a small balance on my credit card to maintain a payment history. So what should I do? Should I pay off the entire amount balance or leave a small amount owed? If I leave a small balance, how much should it be? Does anyone have some good advice?

From a strictly financial standpoint, no debt is good debt. The odds are, you're earning interest somewhere in the 3% range on your savings but paying around 20% on your credit card balance.

So, while it's good to have emergency funds, you'd essentially be saving 17% by paying off yoru debt with your savings.

However, you're right...by paying off your balance and having an open credit line your credit score might be impacted. What the impact will be is hard to determine. If your credit balance is close to your line of credit, you may actually see an increase in your credit score since most score models frown upon "maxed out" accounts.

If your balance is less than 50% of your credit limit, you shouldn't see much of a change by paying it off.

And yes, you should try to carry small balances or at least show regular charge and payment history on your accounts to help your credit score.

I too have heard that you should have a small balance on your credit card to maintain a credit history. I strongly recommend having a balance that is tangible to your needs. Meaning that you should not exceed a debt balance on your credit card that you can not pay off quickly in one payment or so. I must admit that it is very easy to put your purchases on your credit card and before you know it, your balance is out of reach and your making the minimum payments. So although you need a credit history, just remember to control what you put on your credit card and don't exceed your limits.