We recently received an email from a fairly new credit card holder who had been told that carrying a balance on his credit card would actually improve his credit score. He was writing to ask whether what he had been told was true. That may be one of the most misunderstood practices of credit card usage.
Two things that creditors consider most are:
(1) Whether bills are paid on time
(2) The debt to credit ratio or how much of an available credit line the card holder is using
In other words if you have three cards with a total credit limit of $6,000 and you carry balances totaling $5,000 then your debt to credit ratio is very high. Paying your balances down completely or at least somewhere under 50% of your credit limit (in this case $3,000), will actually result in improving your credit score. So, the correct answer is that first and foremost you should pay at least the minimum amount due on time, every time. And, the other part is that your credit history will actually be improved if you keep your debt to credit ratio low. Using the card for purchases on a monthly basis and then paying your entire balance off within the grace period will send a strong message to the credit bureaus that you are responsible with your credit card and, as a result, your credit score will likely improve.
Other Resources: