This question comes from our reader Penny:
I do not want to carry a balance on my credit card. Do I have to use it each month to keep my credit in good shape? If so, is it better to put a recurring bill on it or use it for purchases such as groceries and gas?
Good afternoon Penny,
I am a Financial Services Specialist here with Apprisen and would be happy to answer your question! I am often asked about how carrying a balance on a credit card affects your credit score. Gratefully, the answer is fairly simple, though not necessarily intuitive.
First of all, I congratulate you on the desire to keep your card at a zero balance. That is truly ideal for two reasons: First, it keeps you from paying interest on the card each month which translates to savings for you. Second, part of what makes up your credit score is your balance-to-limit ratio. Some scoring methods will tell you that the balance needs to never exceed 30% of the limit, but it’s always true that the lower the better. This means (somewhat ironically) that the persons with the best scores have credit available to them, but rarely use much of it.
You do not necessarily need to use the card each month to keep the credit score up, but you do want to use it at least every few months (I’d say every 3 or so) to make sure that the credit card company doesn’t close it due to inactivity.
Putting a recurring bill on the card versus using it for one-time purchases is completely a personal preference as the credit report and score won’t know the difference. Using it for a recurring bill will mean you know for sure that it will get used and not exceed a certain amount. But if you have a lot of cards, it could become inconvenient to remember which bills are paid with which card and what to update when the individual cards expire or if one is lost or stolen. I have done both in the past and found a set-up that works for me – I like having one small utility bill on automatic payments (since they never seem to mail the bill on time and I despise paying late fees) and then use it occasionally for gasoline so that I can pay at the pump rather than trudging inside, fighting the weather (and in my case kids), and probably buying a candy bar I don’t need as well. It just depends on what works for you.