Should I pay credit card balance to ZERO, or just the balance due?

Question

I have a credit card set to pay the balance due in full on the due date automatically, so I don't pay interest. By the time the due date hits, my actual balance is of course, almost double the statement balance. Does having a large balance affect my credit score at all? Does it make sense to pay the entire balance down to zero (or near zero), instead of just the balance due from the previous month?

Answer 1

Should I pay credit card balance to ZERO, or just the balance due?

Should you? Not necessarily.

Does having a large balance affect my credit score at all?

That all depends on how large that large is. Keep your usage rate (the percentage of your credit limit which you've used) on the date when the bank reports your status to the credit bureaus to less than 20% and everything will be just fine.

The date is usually a few days after the monthly closing date.

Answer 2

Does having a large balance affect my credit score at all?

Yes, your credit utilization ratio is a significant factor in your credit score. Many people suggest 30% as a target upper-limit for utilization. This article from creditcards.com suggests that the ideal is 1-9%.

Does it make sense to pay the entire balance down to zero (or near zero), instead of just the balance due from the previous month?

It depends. If you've got no need for new lines of credit in the foreseeable future, then you might as well take advantage of the full cycle and just pay your balance due, earn yourself a little interest. If you find you are consistently utilizing more than 30% then you could request a limit increase.

If you will be applying for new lines of credit in the near future and have a score that's borderline, then it might be worth paying your credit card balance down more frequently than once a month. Most likely though, the fluctuation in credit score caused by utilization won't be significant enough to change the outcomes with lenders.

Answer 3

You only need to pay the balance due - there's usually no reason to pay the balance to zero unless you have some specific needs (e.g., a big purchase that will utilize most of your credit line if you don't zero out your balance).

Per this Experian article:

There is a common myth that carrying a balance on your credit card from month to month can benefit your credit scores, but that is not true. Ideally, you should pay off your credit card in full every month.

Leaving a balance will not help your credit scores. All it will do is cost you money in the form of interest.

The most important factor in credit scoring is always your payment history – whether or not you make all your payments on time. The second most important factor is your utilization rate, or balance-to-limit ratio. The lower your utilization rate, the better for your credit scores.

Paying off a large balance, even if not part of the payments due, can help you improve your utilization rate. This improved ratio might be important if you're applying for a mortgage or auto loan and need a better credit score to get a better interest rate.

Answer 4

How the credit score is derived is deliberately mysterious. Discover reports my score as 822. Navy Federal: 839.

From what I've read, yes, too high of a balance might hurt your credit score. So might too much available credit. My Discover credit score has only moved a few points as a result of a high balance.

Payment history and length of credit history also fold into the mix.