Tori Dunlap Says This Credit Card Strategy Is a Complete Myth

Don't fall for it or you could cost yourself money.

Improving your credit score is one of the best things you can do to improve your overall financial situation since this score affects so many aspects of your life. But it can be confusing to figure out exactly how you can boost your credit.

For those looking for advice, finance expert Tori Dunlap has provided some helpful tips in her podcast episode called "Increase Your Credit Score." While she provided many suggestions for ways to make your credit better, one of the most important points she made in her podcast related to a common -- and costly -- myth that many people believe.

Dunlap warns against buying into this common credit-building misconception 

In her podcast, Dunlap addressed the common misconception that it is necessary to owe money on a credit card in order to build credit. 

"One of the biggest myths I see is that keeping a balance on your credit card boosts your credit score," Dunlap said. "That is a complete and total myth -- do not, unless you absolutely have to, keep a balance on your credit card."

Dunlap cautioned that maintaining a balance "does not help you," but instead, “puts you in debt." And she urges her listeners to pay their bills in full and on time every month rather than getting stuck paying interest. 

Following Dunlap's advice is a great idea

Dunlap is exactly right when she warns that many people think they need to carry a balance to raise their credit score and end up costing themselves money in the process.

The myth may have taken root because you do need to borrow to build credit so you can show you're responsible with it. But there's a difference between using a credit card and paying interest on it.

You can use a credit card to buy things and pay it off when your statement balance comes due without incurring interest charges. Your on-time payment will still be reported to the credit reporting agencies. This is sufficient to develop a positive payment history, which is the single biggest factor that determines your score.

Carrying a balance isn't needed to do this and, in fact, it can end up hurting your credit score if your balance gets too high as a percentage of available credit. The second most important factor that determines your credit score is your credit utilization, which is credit used relative to the credit extended to you. If this ratio is above 30%, this hurts your score. The lower this number is, the better.

"Experts recommend under 30%, but we really want to be under 10%," Dunlap explained. "If you can swing it, my typical credit utilization is about 5%." 

Understanding this reality can help you make better choices about how you manage your credit-building efforts so you can both have the best chance of increasing your score and avoid damaging debt that will cost you in the end.  

And this is important because, as Dunlap says, "So, although credit scores can often be boring, what credit scores can give you, the life that they can give you, the opportunity is the choices they can give you. Those are definitely not."