Back in my 20s I defaulted on a mortgage due to circumstances outside of my control (at least, that's what I tell myself - financially-pepper people don't ever get in to that situation). The house was repossessed, and only the other month I was able to pay off the difference of £7500 to the bank (as the house got sold at auction).

I have also managed to pay off outstanding County-Court Judgements, and as far as I can tell at 38 - I've satisfied all debt from my bad decisions.

I recently applied online for a credit card - not to do anything silly, but to try and rebuild my credit history. I've gone for a Capital One Mastercard (limit £500) @ 34.9% APR. I know the APR is high, but my question is - to rebuild a credit history should I be going for small purchases I know I can afford to pay off immediately, or larger ones?

Is there a formula for the best way to do this?

Unlike my early 20s self, I understand it's not free money. But Given that I have paid off some seriously large debts recently, I wondered what the best way of moving forward was.

Thanks in advance!

  • 6
    Pay it all off every month. Never let a balance accrue.
    – Fattie
    Commented Nov 5, 2016 at 14:06
  • I agree with Joe Blow. Is there some reason you feel the need to rebuild your credit?
    – Michael
    Commented Nov 5, 2016 at 18:00
  • @Michael - well this is why I posed the question - not even sure how long it takes for these things to either leave your record, or become a good thing on you credit score. If I utterly financially savvy I'd have not posted the question :)
    – Moo-Juice
    Commented Nov 5, 2016 at 18:34
  • 1
    @Moo-Juice Then why are you asking "to rebuild a credit history should I be going for small purchases I know I can afford to pay off immediately, or larger ones?" I'm probably missing something, but to me, this question doesn't make sense.
    – user
    Commented Nov 6, 2016 at 12:26
  • 2
    @MichaelKjörling I think he is asking what had the better impact on his credit rating: paying off in full each month or carrying a small but manageable balance and making timely payments on that.
    – Eric
    Commented Nov 8, 2016 at 18:54

2 Answers 2


The weird thing is that if you use the credit impact simulators with the credit monitoring services, they show that the impact of paying your credit cards off completely is more negative than carrying a small balance, which doesn't make a great deal of sense, one would think. From what I can gather, the rationale is that carrying a small balance shows you making payments over time, as opposed to having a zero balance. This doesn't quite compute with me, but I don't truly understand the inner workings of the scoring models. To confirm this, I used simulators with both TransUnion and Experian, and both showed this. I know that it's easy to find people on both sides of this argument, so I can't say which is the best option (certainly whichever side someone falls on is the one they'll argue is the right one! chuckle).

In all fairness, your best tool is time. The effects of your prior bad decisions will lessen over time as they move further away in your history and then disappear altogether. Obtaining a credit card just because you think you need one is not a compelling argument, by any means. If you can't rationalize reasons why you need it then maybe you should question the wisdom of such a decision. If you don't have a particular need for better credit right now, why be in a hurry to take on debt?

Whatever the formulas are for calculating credit scores, the specific details are a pretty closely-guarded secret (they're proprietary for starters, plus it theoretically prevents people from "gaming the system" for a better score), but if you do enough research online, you can get a pretty good sense of how they work in general.

Whatever you do with your credit should be in line with your overall financial goals. If you want to remain debt-free (at least for now) then having a credit card you can't otherwise justify a need for just introduces temptations which could prove tough to resist ("wants" quickly turn into "needs" when you can put it on a card you pay later), then you're right back in the same place you were earlier in your life.

Instead of trying to figure out the "best strategy" for a credit card, first ask yourself how necessary it is to you right now in light of your financial objectives, then go from there.

I hope this helps.

Good luck!

  • Thanks, this is a fantastic answer and very enlightening! I understand about the temptation part. For this reason I've handed it over to my partner and we'll use it to only pay for things we've already got the cash for, and then pay it off immediately. She's somewhat more savvy than I am! :)
    – Moo-Juice
    Commented Nov 15, 2016 at 9:25

Carrying a small balance is generally better for your credit score that paying off in full every month by virtue of the statistics and models that give you a credit score for a certain product. Banks don't want to lend to customers that aren't going to be profitable, in my experience customers who can show that they have credit over time are generally awarded a higher score.

So my advice would be to keep a small, manageable balance on the credit card, paying off the balance and then spending a little again on the card to keep at roughly constant balance. This revolving credit is the purpose of the product, and by showing you can use it sensibly, you will be rewarded over time.

Source: I build credit scoring models for a big UK lender, specialising in credit cards and personal loan modelling.

  • The phrase "carrying a balance" generally implies not paying off the entire balance at the due date, but carrying the balance forward to the next statement (and accruing interest charges). Is that what you are suggesting?
    – Ben Miller
    Commented Nov 12, 2016 at 13:53
  • Yes basically. I didn't say this is the cheapest way. Having a balance and immediately paying it off doesn't demonstrate that a customer can handle having debt, which is what banks what to see. Commented Nov 12, 2016 at 18:00
  • I don't know the specifics of the U.K. credit score (so no downvote from me), but in the U.S. this would not be true.
    – Ben Miller
    Commented Nov 12, 2016 at 18:33
  • I realise it may sound counter intuitive, but after building the models I am sure that this is the case. Of course I can't speak to U.S. scoring methods however, thanks for your input! Commented Nov 12, 2016 at 18:36
  • In the US you just need the balance to report. Pay off completely by due date to avoid interest. For best score effect only one card to report balance, min of 3 cards, utilization under 10%. You do not have to pay interest to have a good score. Really, you do not need to worst about any of this either. Just use and pay your bills and your will be fine
    – Eric
    Commented Nov 12, 2016 at 20:16

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