Carrying credit-card balance a persistent myth

Carrying a balance to help improve your credit score? You’re not alone.

But you might want to rethink the strategy.

More than 1 in 5 credit-card users, or 43 million Americans, carry a balance – or pay the minimum to credit-card companies, thus always owing them money – to help improve their credit scores, according to a new report from CreditCards.com. But carrying a balance is not one of the factors that go into creating a FICO credit score.

Payment history, amounts owed, length of credit history, credit mix and new credit are the only facets that rating companies consider when determining credit scores. And though many experts have reported this, Creditcards.com’s senior industry analyst Matt Schultz says that the “myth” of the utility of carrying a balance still persists.

Younger users are more likely to carry a balance, according to the report, with 28 percent of millennials perpetuating the myth. Though Schultz said living through the 2008 Great Recession has made millennials “financially cautious,” he does not believe that has made them more financially educated .

Millennials are most likely to carry a balance due to a “function of inexperience and lack of financial education over the course of their lives,” Schultz said.

The study also found that 27 percent of cardholders without a college degree have done this, versus 12 percent with a college education. And 30 percent of credit-card users making less than $50,000 per year have wrongly sought to improve their credit scores by carrying a balance, compared to 19 percent of those earning more than $50,000.

Rather than carrying a balance, credit-card holders should focus on paying down debt and lowering credit utilization, said David Rae, a Los Angeles-based certified financial planner.

“If you’re looking to raise your credit score, ask your credit-card company to increase your credit limit ... your credit utilization is a big part of your credit score,” Rae said. “If you raise it, you’re only utilizing a small amount of your credit.”

About 42 percent of those surveyed confessed to paying a credit-card bill late. From that group, 71percent said they paid late because they forgot, were busy or were traveling.

Paying the bill one or two days late won’t hurt Americans’ credit scores, according to Schultz. However, being significantly late will.