Secrets Behind the Optimal Credit Card Balance

Today, I’d like to introduce you to an old friend who I first met in July of 1998 when I was testifying before the U.S. House of Representatives about how underground information brokers, identity thieves, and unscrupulous private investigators use social engineering – impersonation – to steal financial information and money from victims’ bank accounts.

His name is Bob Sullivan.

Bob is an investigative reporter and best-selling author with a long career focusing on cybercrime and consumer issues. For many years, Bob authored the very popular consumer/tech blog The Red Tape Chronicles.

I’m proud to say that Bob featured me in his very first book, Your Evil Twin: Behind the Identity Theft Epidemic. Lest you think otherwise, I guess I should quickly add that I was included in the book as one of the good guys battling identity theft.

Recently, after many years working with NBC, Bob went out on his own and he works now as a freelance investigative journalist, technology skeptic, and consumer advocate.

I can tell you that I’ve met hundreds of reporters and authors during my career and Bob is one of the most honest, decent and genuinely good journalists it’s been my pleasure to know.

But what matters most for our purpose today is that Bob has an excellent piece out about the secret truth behind the relationship between your intra-month credit card balance and your credit score.


Before I share the important information Bob unearthed this week,here is the January edition of the Self-Reliance Institute Newsletter.


OK. Let’s get back to what we all need to know about how our intra-month credit card balance impacts our credit score. Because, I’ll admit, it’s different than what I thought it was and therefore it may be different than what you believe.

In, “Burning question: What’s the *right* balance to keep on a credit card?”, Bob relays what he learned from Barry Paperno.

Who is Paperno?

Paperno is “a credit expert and former credit industry insider with FICO and Experian” who now shares what he learned as an insider.

While I encourage you to read all of Bob’s excellent piece, here are several key tidbits from the piece that any self-reliant individual should know when it comes to the relationship between your intra-month credit card balance and your credit score.

[E]ven if you pay your bill in full each month, running up high balances can have a negative impact on your score. For example, maxing out a card can cost you between 25 and 45 points…”

What is the *right* credit card balance? In credit industry language, what is the right “credit utilization ratio? The short answer is pretty close to $0. But definitely not $0. It’s also definitely not 20 or 30 percent of your available credit, both numbers [Bob has] heard from readers.”

There is no good reason, ever, to carry a balance from one month to the next and incur interest charges. [Bob has] seen people make this mistake, thinking they were somehow helping build their credit, and it couldn’t be more wrong.  It’s always the right move to pay your bill in full by the due date.”

While credit scores are becoming more widely available to consumers, the formula used to construct them is still shrouded in mystery.”

Utilization is a simple concept.  If you have four credit cards that together have a credit limit of $10,000, and you are carrying $2,500 in debt on them, you are using 25 percent of your available credit — or 25 percent utilization.”

At what point are credit scores punished?…[at] less than 10 percent [of utilization]…In fact, a more accurate answer is between 1 and 9 percent, says Paperno.”

To repeat the essential message here: By far, the most important thing you can do to help your credit is simply pay your bills on time…But as a healthy rule of thumb, in the course of your normal spending habits, try to keep your credit card balances under 10 percent of your available credit at all times.”

OK. There’s a lot more information in Bob’s piece, Burning question: What’s the *right* balance to keep on a credit card?”, and I encourage you to read it as I bet you’ll learn a good bit. I certainly did.

But bottom line: Keep your intra-month credit card balances under 10 percent of your available credit – but not zero – and pay the full balance each month so that you do not incur interest charges.

As always, please share your thoughts and comments with me by emailing [email protected]

Be safe, secure and free!

Rob Douglas – Former Washington DC Private Detective and Certified Identity Theft Risk Management Specialist

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