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Credit Score: Carry A Balance or Not?

Question: My 23 year old son applied for a credit card and was turned down because of "lack of credit history." We had held a joint credit card with us but apparently that didn't matter. He had a history of both utilities and rent in his name. His bank suggested a guaranteed credit card. He has applied for one of those. Now he wants to establish his credit. My understanding is that he needs to use the card and pay off in payments. Our family has always paid in full. He is very reluctant to not pay off the total every month. Am I correct in having him pay off in payments? If that is right, what is the minimum amount he needs to carry over each month and how long does he have to do this. He really doesn't want to carry a balance at all. Nancy, Scotts Valley, CA

Answer: No, your son should regularly use the credit card to build up a history, but then he should go ahead and pay off the monthly bill in full. It's a good financial habit to get into, and when it comes to his credit score there's no need (or extra benefit) to carry a balance. He should be able to get a traditional unsecured credit card fairly quickly, too.

By the way, when it comes to creating and improving his credit score, he should keep his credit use to less than 30% of his credit limit--and preferably closer to the 10% mark. Again, it's a sound habit both from the financial and credit score perspective.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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It is not too early for him to get in to the habit of maintaining a credit score chart because it will help him a lot to understand how to maintain a good credit score in future.

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