Washington Post finance columnist Michelle Singletary took on the “counterintuitive” advice a reader wrote in about: The reader, who was trying to refinance a mortgage, was told to leave a small balance on her credit card (rather than paying the card off). That didn’t seem quite right and the reader wanted another opinion.
While there may have been a time when many Americans didn’t even know they were being judged using a credit score, that has changed. However, even though more people are aware of the credit scoring system, it still remains a mystery to some.
The overall advice to leave a balance on a credit card isn’t sound; Singletary notes this and goes into greater detail. There are basic FICO credit scores that range between 300 and 850 and there are industry-specific scores that range from 250 to 900.
“The two factors that impact your score the most — up or down — are your payment history and amounts owed. Understanding payment history is easy. You need to pay your credit accounts on time — all the time. Late payments can take your score down.”
A FICO score also takes in to account how much debt you have in different categories (car loan, mortgage, credit cards). A credit card is revolving debt and it factors in more than something you pay in installments, like your mortgage.
People with a perfect FICO score of 850 don’t have missing payments reported and their average revolving credit utilization is 4.1% according to Singletary. This means that those people aren’t using more than 4.1 percent of their available credit. Your score won’t improve if you don’t pay off your debts as soon as you are able. Leaving a small balance on a credit card does nothing to improve your debt-to-credit ratio.
The reader who wrote in got the advice about leaving a small balance on a credit card was trying to refinance real estate so Singletary also consulted with a real estate expert who agreed that leaving a balance will not get you a great deal on a mortgage.