Can You Build Credit Even If You Completely Pay Off Your Credit Card Every Month?

Using a credit card helps build your credit because it allows you make regular monthly payments to develop a consistent payment history and prove to lenders that you are responsible with debt. You do not have to carry a balance from month to month to reap the benefits on your credit score. In fact, credit scores do not distinguish at all between people who pay in full and people who carry a balance.

Payment History

The largest factor in your credit score is your payment history, which counts for about 35 percent of your score. If you pay your credit card bill on time every month, you can have a perfect payment history. Therefore, you should use your credit card a little bit each month so you have a bill to pay each month.

Balance Reported

In order to demonstrate that you are using your credit card, which helps your credit score, you want your credit report to show a balance each month. However, this balance does not have to be carried over to count. According to Liz Weston of MSN Money, most credit card companies report the amount on each credit card statement to the credit bureau. This amount can consist entirely of charges you have made during the month, which you can then pay in full when you receive the bill.

Benefits of Paying in Full

Paying your credit card bill in full is usually the wisest financial strategy. For one, if your credit card has a grace period and you pay each bill in full before the end of the grace period, you will never have to pay any interest on your purchases. However, if you fail to pay a bill in full, you will owe interest on your next bill. In addition, paying your credit card bill in full every month keeps you from being overwhelmed by your debt. If you only charge what you know you can afford to pay in full, this will keep your spending within your budget.

Credit Utilization Tips

One way that your credit card balance can hurt you, regardless of whether you pay it in full or carry it and pay interest, is through your utilization ratio. This number compares your account balance on your last statement to your total credit line. Your utilization ratio should be under 30 percent to avoid hurting your score, and a ratio under 10 percent is even better, Weston said. For example, if your credit card limit is $4,000, a statement balance of $1,200 or less is under 30 percent and a balance of $400 or less is under 10 percent.