Reader Mail: Should I Try to ‘Buy’ Credit Points?

My parents love reading books like this and this about how to get rich by acting like so-and-so. I mostly am not paying attention when they attempt to impart bits of advice to me from their reading material because they sound awful and uh … problematic, but one thing they said has stuck in my brain (which maybe I willfully misheard, being credit card-free and uninterested at the time): If you allow yourself to accumulate some interest on your credit card bill, and pay it off each month or some other reasonable amount of time, it will steadily, quickly improve your credit.

The simplified version is that you are essentially “buying” credit points. I currently have about $2,000 in credit card debt which I am aggressively paying off right now, but I have a bad credit score because I skipped or was very late on payments during a few-months-long period when I was broke and sad and pathologically incapable of asking for money from said well-meaning parents. Once I am done paying off the credit card, I hope to employ a strategy of putting my bills (phone, internet, utilities, etc.) on my one credit card, then paying off the balance each month. Is it better for me to pay the balance before it collects interest to save me money (is that even the way it works? I mean, I can do that, right?), or is that money spent on interest a valuable investment in raising my credit score faster? — A.G.

Let’s just get right to it: Carrying a balance and paying interest every month is not going to improve your credit. That’s a myth, and you do not want to be a part of a system that forces you to “buy” credit points by paying interest to a creditor. 

Other experts agree: After you’re done paying off your $2,000 credit card balance, and are in a position to pay off your balance in full every month, you should definitely pay off your balance in full every month. Part of being good with money is developing good habits, and paying your credit card balance in full every month is a good habit. Carrying a balance and paying interest every month is a bad habit, and you certainly don’t want that!

If you want to improve your credit score, don’t miss another payment. Make regular payments every month, and your credit score should repair itself over time. Another thing you can do right now is to ask your credit card company to increase your credit card limit. What an increased credit card limit can do is lower your debt to available credit ratio. You will improve your credit score if you limit your credit card use to less than 30 percent of your credit limit, and an increased credit limit can help get you down to those lower percentiles. Some credit card companies can approve you for more credit instantly, but I should mention that if your credit card company needs to pull your credit record to approve you for more credit, your credit score will take a little hit, which you don’t want, so make sure to ask if they’re going to do that.

Recap: Don’t pay credit card interest in an attempt to buy credit points. Having and using your credit cards is what will repair your credit. So if you put your bills on your card, pay them off in full every month, and that score should inch its way up soon enough.

 

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Photo: Flickr/shawnzrozzi

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6 Comments / Post A Comment

Fig. 1 (#632)

“Buying” credit points? That seems like a terrible idea.

Related: can you guys look into a take-down of some of those financial advice books? My sister is foisting them upon me and I am suspicious. If somebody else tells me I need to start investing…

@Fig. 1 BUYING FACEBOOK SHARES BUILDS CREDIT BRO. Get ON that.

Fig. 1 (#632)

@Leon Tchotchke HOW DO INVEST? IS THIS HOW INVEST?

aidan (#803)

Wait… 30 percent? I thought it was 50 percent. Are there multiple tiers of debt to credit ratios?

MaggieL (#976)

Thank you for answering this. I think there’s a lot of confusion about what “paying your card in full” and “carrying a balance” means. Paying off the card every month means you charge things, the credit card company sends you a bill, and then you pay that bill. No interest involved. There’s only interest if you do not pay them the full amount due — and in that case the interest will start to show up the *next* month.

I have had conversations with people who believe that “paying off the full balance” means paying the credit card company *before* they send you a bill. This is not necessary. Letting them bill you does not add interest.

Sarah H. (#408)

@MaggieL Thank you, I actually didn’t realize that, either!

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