Charging bills can help your score if you pay early, often


Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
I'm on the verge of getting a new apartment next year and want to open up a credit card to help me out financially a little bit. Say, for example, that  my credit card limit will be $500 and I only want to swipe my card for my light bill and cable bill each month. Is that a good or bad thing for my credit score? What if my total is $300 for both bills? Do I have to pay that $300 by the end of the month or just pay the minimum payment due? Also, what if I spend $300 a month just for those two bills and my credit card interest fee is $30 a month and I pay $50. Will I be in good shape?  -- Anthony


Dear Anthony,
Getting a credit card now is a great idea if you use it correctly. It can be your entry point to a high credit score that will eventually help you secure low-cost loans in the future. That will save you a lot of money in interest charges, especially if you transition from a rental to applying for a mortgage. In the meantime, a credit report that lists many on-time payments and low or no debt will be impressive to landlords and employers, as well as cellphone providers and others who refer to your credit report to see how responsible and creditworthy you are.

Before you apply for any credit cards, however, know that using plastic to cover basic expenses, such as utilities, can be a mistake that can lead you into crippling debt if you don't pay off the balance every month. If, however, you would like to apply for and use credit responsibly in order to build your credit score and use credit more for convenience rather than as an income supplement, read on.

I encourage you to apply for a credit card that is within your reach. If you've never had such an account (or any kind of loan), you have what's known as a thin or nonexistent credit file. Because there's nothing recorded about your borrowing past, a lender won't have enough information about you to make a sound judgment regarding your credit character. So go to the "Limited or No Credit History" page on this site to look for cards developed for people who've yet to prove their credit expertise. If you do have an established history, check your free FICO score at to determine where you stand, so you can pursue a credit card that fits within your scoring range.

Once you have the card, use it advantageously.

Let's go with your example of a credit card equipped with a $500 limit. That line of credit is the maximum amount you can charge. You can borrow up to that sum and then pay in installments (as long as you send at least the minimum payment required by the issuer, you will keep the account in good standing) or pay off the entire balance. Without question the latter choice is best.

Here is a scenario:

The credit card is ready to go, and your household bills begin to roll in. If you have the option to pay for them with the card, you may do so. You charge $300. Over the next several weeks, you will receive a bill from the issuer. Pay the entire debt and your credit limit will be refreshed: $500 will be available to you again.

However, if you only send $100 to the issuer, a $200 balance will roll over to the next month and interest costs will be added to the bill. You will not have the entire $500 left to charge with until the debt is at zero.

Now, as I said, as long as you pay on time, the credit card company will be satisfied and you'll be good as gold. Or, more accurately, as delightful as dollars, as that's what you'll be giving the issuer in exchange for revolving the debt. Interest compounds, so if you keep the balance going, fees will be calculated on a balance already increased by fees. The issuer will be happy, but you may not be since the debt becomes expensive.

To guarantee that the arrangement is beneficial to you and the issuer, only borrow the amount that you can delete by the due date. As long as you can afford those utility bills, connecting them to your credit card is wise, if the utility allows you to pay via plastic. You can pay the credit card bill as it comes in, or sign up for your bank's bill-pay system so payments are automatically deducted from your checking account and sent to the issuer, or pay in multiple installments over the month online.

A warning, though: Even if you do pay the total of your charges by the due date, your credit report won't necessarily indicate a zero balance, which can work against you trying to achieve a higher credit score. While that may not sound fair, since you are eliminating the balance every month, a hefty portion of your credit score is based on your credit utilization ratio. That ratio measures how much debt you owe (what you charged) compared to the amount you can borrow (your credit limit). If you charge $300 a month on a card with a $500 limit, you are using 60 percent of your credit line, which is too high, according to credit scoring experts.  How does this happen, you ask? Well, the credit issuer might send information about your account before your payment is posted. Consequently, if you've spent to the hilt and that's what your issuer reports, your credit score will be lower than it ought to be.

To offset this problem, you can call the issuer and ask which day of the month it reports to the credit reporting agencies. This may take a little time to explain to the representative, as it's not a standard question, so you may need to request a supervisor. When you find out, make a habit of paying before that date. Or, as suggested above, you can make multiple payments throughout the month to keep that credit utilization as close to zero as possible. If building the absolute best score is important to you, this extra effort will be worthwhile.

Follow this plan and your credit rating is sure to increase. It won't be long before other credit card companies come a-calling!

See related: How to build a credit score with your first card

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Published: November 18, 2015

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Updated: 10-23-2016

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