Does Paying Rent Build Credit?

If you're like millions of Americans, you probably rent an apartment or home, and so you might be wondering, does paying rent help you build credit? We will provide you with everything you need to know about whether paying your rent help you raise your credit score.

Does Paying Rent Build Credit?

In most cases, paying rent does not build credit because most landlords and property managers do not report rent payments to the credit reporting bureaus. However, if your landlord does report rent payments to the credit bureaus, then paying rent could help you build credit so long as you make your payments on time. If your landlord does report rent and you miss a rent payment, you could cause significant damage to your credit.

If your rent does not appear on your credit report, making your payments on time or failing to make them will have no impact on your credit. However, if your landlord or property manager reports rent payments to the credit reporting bureaus, then making your payments can actually help you build credit.

That said, in most cases, making rent payments does not build credit because landlords and property management companies do not typically report your rent payments to the credit reporting bureaus because it costs them money to do so. It costs them money to invest in hardware, software, and subscription fees to report payments, so most do not report to the credit reporting bureaus.

That said, if your landlord does not report your rent payments to the credit bureaus, you can still cause damage by failing to pay your rent.

Failing to pay your rent could indirectly ruin your credit score. If you don't pay your rent in the event that your landlord or property manager sells the unpaid amount of money to a collection agency. The collection agency will then attempt to collect the past due amount from you.

If you fail to pay the collection agency, they may place a collection account on your credit report. A single collection account can cause your credit score to drop by 100 or more points. The higher your credit score, the bigger the drop will be.

So, to avoid having your account sent to collections and damaging your credit, you should make sure to make all of your rent payments on time.

We know that it may have come as a shock to you that paying your rent does not help your build credit, but don't fret, you're not alone. According to a survey conducted by Transunion, nearly 50% of renters mistakenly thought that paying rent builds credit. The truth is that very few landlords report payments to the credit reporting bureaus.

Why Doesn't Rent Build Credit in Most Circumstances?

Making rent payments doesn't affect your credit score in most circumstances because very few landlords and property managers report your rent payments to the credit reporting bureaus. The credit reporting bureaus do not go out looking at whether you paid your rent or not, it's up to your landlord or property manager to provide that information to the credit bureaus.

Most landlords don't want to pay the cost associated with reporting your information to the credit reporting bureaus, so that info does not appear on your credit report. If the property owner provides that information to the credit reporting bureaus, the three major credit reporting bureaus (Experian, Transunion, and Equifax) will include that information on your credit report. If not, then it will not appear on your credit report.

Can You Use Your Rent Payments To Build Credit

As of the time of writing this post, there is no way for you to self-report your rent payments to build your credit. There are some services out there that promise to report your rent payments to the credit bureaus in exchange for a fee, but be very skeptical of these services as many of them do not have a relationship with the credit reporting bureaus. If you decide to pay for a service that promises to report your rent payments to the credit bureaus, be careful and make sure to make all of your payments on time as missing even a single rent payment can cause significant damage to your credit.

Missing a rent payment after using a reporting service can cause damage to your credit because your payment history accounts for 35% of your credit score. If you make all of your payments on time, you will build excellent credit. However, missing even a single rent payment after beginning to report rent payments to the credit bureaus can cause significant damage to your credit.

That said, here are some of the most popular rent reporting services we could find on the internet.

What Are Some Decent Rent Reporting Services

1. Extra Credit

Extra Credit allows you to report your rent payments, utility payments, and even your phone bill to the credit reporting bureaus, helping you build your credit in just a few months. The service charges $24.99 per month.

2. Credit Rent Boost

Credit rent boost allows you to report your previous, current, and future rent payments to Equifax and Transunion for the low fee of $5.95 per month.

3. Rent Reporters

Rent reporters allow you to report your rent payment to Equifax and Transunion. Rent reporters charge a $94.95 signup fee. After paying the signup fee, it costs $9.95 per month to continue reporting your payments to the top credit bureaus.

4. Rental Kharma

Rental Kharma reports your rent payments to Transunion and Equifax. Their website states that the average credit score increase after reporting rent payments is 40 points within the first 10 days of signing up for their service. Rental Kharma charges a $50 fee to join and a monthly fee of $8.95 per month.

5. Level Credit

Level Credit can help you report your rent to Equifax and Transunion. They do not charge a fee to signup for the service, but they do charge a monthly fee of $6.95. They do provide the option to report your current, future, and 24 months of previous rents payment to the credit reporting bureaus.

What Happens If You Miss a Rent Payment?

If you miss a rent payment, not only can your missed payment result in an eviction, but it could impact your credit if your landlord usually reports your rent payments to the credit reporting bureaus.

If the property owner reports rent to the credit reporting bureaus, a missed payment can result in a significant drop in your credit score.

That said, most landlords do not report rent payments to the credit reporting bureaus because it costs a ton of money to do so.

So, if your landlord is like most, then he does not report rents payments to the credit bureaus. In this case, missing a rent payment will have no impact on your credit.

That said, even if your landlord doesn't report late payments, you should keep in mind that your landlord may sell the outstanding amount that's due to a collection agency.

The collection agency could cause significant damage to your credit if it reports a collection account to the credit bureaus, causing a collection account to appear on your credit report.

A single collection account can knock down an excellent credit score by 100 or more points. So, not only can missing rent payments lead to an eviction, but it could indirectly result in damage to your credit.

The best thing to do is to always make rent payments on time. If you're having difficulty making your payments, please contact your landlord and ask them for a solution or alternatives to avoid eviction and damage to your credit.

Frequently Asked Questions (FAQs)

1. Do rent payments build credit?

In most cases, rent payments will not build credit. If your landlord does not report your rent payments to the credit bureaus, your on-time payments will not build credit. However, if your landlord does report your rent payments to the credit bureaus, then making payments will help you build credit. That said, most landlords do not report rent payments to the credit reporting bureaus.

2. How does paying rent increase your credit score?

Paying rent can only increase your credit score if your landlord reports rent payments to the credit bureaus, and you make all of your rent payments on time.

3. How do I get my rent reported to the credit bureaus?

You can get your rent reported to the credit bureaus if it's not reported by your landlord by paying for a service that reports your rent payments to the credit reporting bureaus. This post provides you with some of the most popular rent reporting services available.

4. Do rent reporting services charge money?

Yes, rent reporting services typically charge you a signup fee and a monthly fee for reporting your rent to the credit reporting bureaus.

5. Do missed rent payment affect your credit score?

Missed rent payments will only affect your credit score if your landlord reports rent payments to the credit bureaus. If your landlord does not report rent payments to the credit reporting bureaus, then missed rent payments will not impact your credit. Most landlords do not report rent payments to the credit reporting bureaus.


Does Paying Tuition Affect Your Credit Score?

If you're a college student, you might be wondering, does paying tuition affect your credit score, or does paying your tuition late hurt your credit. This post provides you with everything you need to know about how paying tuition or failing to pay affects your credit score.

Does Paying Tuition Affect Your Credit Score?

No, paying tuition does not affect your credit score because tuition payments are not reported to the credit reporting bureaus. Therefore, they do not appear on your credit report nor do they impact your credit score. Although paid tuition does not improve your credit, if you do not pay your tuition, your unpaid tuition could be sold to a collection agency, causing a collection account to appear on your credit report, causing significant damage to your credit.

So, now that you know that paying your school or college tuition has no effect on your credit score, does failing to pay your tuition affect your credit score?

The answer is yes, failing to pay your college tuition can cause damage to your credit, but the damage is not caused directly by failing to pay your tuition, but because of the collection account that can be added to your credit report by a collection agency.

Typically, if you fail to pay your college tuition, your university or college may task a collection agency with the collection of the outstanding tuition.

If you fail to pay the collection agency, the collection agency can add a collection account to your credit report, significantly lowering your credit score.

A single collection account can lower your credit score by 100 or more points, and it remains on your credit card for 7 years from the date you missed your tuition payment.

After the 7 year period, the collection account will automatically be removed from your credit report, no longer affecting your credit score.

That said, when a collection account is first added to your credit report, it will have a huge negative impact on your credit score. That said, as the collection account ages, its impact on your credit score lessens until it's ultimately removed from your credit report.

In addition to the negative effects associated with a collection being added to your credit report, if you fail to pay your tuition, you should keep in mind that your college can restrict access to your diploma, transcripts, and other academic records until you've paid the amount you owe. If you're still a college student, you may be denied the ability to register for classes, classes you're currently enrolled in may be dropped, and if you're on a student visa, your visa may be revoked.

What Should You Do To Stop Unpaid Tuition From Affecting Your Credit Score?

So, now you know that unpaid tuition can result in your account being sent to collections, here are some things that you should do to pay your tuition and avoid it from negatively impacting your credit score.

If you're having difficulty paying your tuition, you should not ignore paying your tuition and hope that it resolves itself because chances are it will not, and you will just complicate the situation.

Instead, you should contact your financial aid office because they can provide you with a variety of options including applying for student loans, finding scholarships, or jobs that can help you pay for tuition. They will also advise you as to important dates by which you must make payments to avoid having your tuition bill from being sent to collections.

In the event that you go to your school's financial aid office and still cannot pay your tuition, there may be some other options available to you.

For example, you could ask your family or close friends for tuition money, seek out scholarship opportunities outside of your schools, applying for federal student loans, going to a private bank for student loans, or applying for a personal loan to cover your tuition.

That said, obtaining federal student loans is significantly easier than obtaining student loans from private banks.

This is so because private banks are stricter than the federal government when it comes to providing students with student loans.

In fact, if you're a student and you have not yet built your credit, it will be difficult to qualify for a private student loan without a parent or close friend cosigning your student loan application with you.

What Should You Do If Your Tuition Has Been Sent to Collections?

If your tuition account has been sent to collections, you should not ignore the letters and phone calls you're receiving from the collection agency. Answering the phone or responding to a collection notice as soon as you receive it can help you in some circumstances to avoid having a collection account added to your credit report. The process of collecting the debt does not hurt your credit, it's only when the collection account is reported to the credit bureaus and added to your credit report that it causes damage to your credit.

That said, responding to the collection agency may help you avoid having a collection account added to your credit report. That said, if you do contact the collection agency, don't agree to anything via phone call or email. Only ask them about what debt they're trying to collect and the amount owed. Ask them about your options for repaying the debt.

If they offer you the ability to repay a significantly lower amount and you're comfortable paying that amount, then maybe it makes sense to pay it to avoid having a collection account added to your credit report.

If a collection account has already been added to your credit report, you may have noticed a significant drop in your credit score. A large drop is typical if a collection account has been added to your credit report. The higher your credit score, the bigger the drop will be.

So, if a collection account has been added to your credit report, you should try negotiating with the collection agency to remove the account from your credit report in exchange for a full or partial payment.

You should negotiate before paying the collection account because that's when you have leverage. Some collection agencies are willing to perform pay-for-delete deals where they will remove the collection account in exchange for payment.

That said, if the collection agency you're dealing with refuses to remove the collection account, you should be aware that paying a collection account does not remove it from your credit report. In fact, a paid and unpaid collection account affect your credit score the same. So, paying does not fix the damage to your credit.

Even if you pay a collection account, it will remain on your credit report for 7 years from the date you missed your tuition payment. After the 7 year period, the collection account will automatically be removed from your credit report.

So, negotiate with the collection agency and ask them to remove the collection account in exchange for payment if you're able to do so.

Does Paying Tuition Late Affect Your Credit Score?

No, paying tuition late will not affect your credit score because tuition payments are not reported to the credit bureaus, and therefore they do not appear on your credit report. That said, if you're very late on paying your tuition, your university or college may have tasked a collection agency with collecting your tuition. If this happens, the collection agency can cause significant damage to your credit by adding a collection account to your credit report.

Frequently Asked Questions (FAQs)

1. What happens if I don't pay my tuition?

If you don't pay your tuition, your missed tuition payments do not impact your credit because late payments are not reported to the credit reporting bureaus. That said, your school may task a collection agency with collecting the unpaid tuition from you. This could cause a collection account to appear on your credit report and cause significant damage to your credit.

2. Do late payments on student loans affect your credit?

Yes, late payments on student loans can cause significant damage to your credit because student loan payments are reported to the credit reporting bureaus. So, missing a payment will cause a late payment notation to appear on your credit report, causing a significant drop in your credit score. So, make sure to make your student loan payments on time. If you are having difficulty making your student loan payments, you should contact your student loan service provider for alternatives, such as postponing payments or reducing your monthly payment.

3. How long do late payments on student loans affect credit score?

Late payments on student loans will remain on your credit report for 7 years from the date you missed your payment. After the 7 year period, the late payment is removed from your credit report, and will no longer bring down your credit score. Removal of the payment is automatic after the 7 year period.

4. Does paying tuition improve credit?

No, paying tuition does not improve your credit because tuition payments are not reported to the credit bureaus.

5. Do late tuition payments hurt your credit score?

No, late tuition payments are not reported to the credit bureaus, so they will not directly hurt your credit score. However, if you're extremely late, your institution of higher education may task a collection agency with collecting the tuition. Collection agencies can cause significant damage to your credit if they add a collection account to your credit report.


Does Paying Down Debt Increase Your Credit Score?

If you have debt, such as credit card debt, auto loan, home mortgage, can paying down your debts increase your credit score? We will explore whether paying off your debts can increase your credit score?

Does Paying Down Debt Increase Your Credit Score?

Paying down debt can increase your credit score, but it really depends on the type of debt you're paying off. Paying off installment accounts, such as personal loans, auto loans, or mortgages can result in a small and temporary drop in your credit score while paying down credit card debt can result in a quick increase in your credit score because it decreases your credit utilization.

Paying down debt such as your credit card balance can raise your credit score because your credit utilization makes up 30% of your credit score. The lower your credit utilization, the better your credit score will be. When you pay down your credit card balance, you're decreasing your credit utilization, therefore raising your credit score.

On the other hand, when you pay off something such as a car loan, mortgage, or personal loan, you might notice a slight and temporary drop in your credit score. This drop occurs because when you pay down such debts, you're essentially closing an installment account.

When you close an installment account, you're reducing the diversity of your accounts, which can result in a small and temporary drop in your credit score.

That said, if you close an installment account, your credit score should recover within a short few months so long as you continue to make payments on all of your other credit cards and accounts.

Which Debt Should You Pay Off First To Increase Your Credit Score?

The quickest way to increase your credit score is to begin with paying off credit card debt. Paying off credit card debt will allow you to see a quick increase in your credit score. This is especially true if you're utilizing a lot of your available credit.

Paying off credit card debt can increase your credit score significantly because your credit utilization makes up 30% of your credit score. Whenever you pay down your credit card debt, you're increasing your available credit, which can boost your credit score. So, for quick results, start off with paying down your credit card balances.

For example, if you have a total credit limit of $10,000 and you pay down your credit card balances from $5,000 to $2,000, you're decreasing your credit utilization from 50% to 20%, which can dramatically boost your credit score.

This is so because the lower your credit utilization, the better your credit score will be.

As a rule of thumb, you should strive to keep your credit utilization below 10% and never exceed 30%. If you exceed 30% credit utilization, your credit score will drop significantly. So, start by paying down your credit card debt.

After you've paid off your credit cards, it's time to turn your attention to installment accounts, such as home loans, auto loans, student loans, and other types of debt with a fixed monthly payment.

Paying down the debt on such accounts will improve your credit but not to the extent that paying down your credit cards would.

Paying down credit card debt is much more important and will have a bigger positive impact on your credit score than paying down installment accounts because they affect your credit utilization ratio, which makes up 30% of your credit score.

So, when deciding which debt to begin paying off first, begin with credit card debt.

When choosing which credit card to start with, you have a few options to choose from:

  1. Paying down the credit card with the highest interest rate - You should consider paying down the balance on the credit card with the highest interest rate because debt is often the most costly you may have. So, paying it off first can save you a significant amount of money.
  2. Paying down the credit card with the highest credit utilization - A second option that you have is beginning to pay down the credit card with the highest credit utilization rate. Going with this strategy is the quickest way to raise your credit score because credit utilization makes up 30% of your credit score. So, paying down the balance on a credit card with a high credit utilization can be a great way to improve your credit score.
  3. Paying down the credit card with the lowest balance - A third option that you have is paying down the credit card with the lowest balance. Some people prefer this method because it can reduce the number of accounts you have to keep track of. This method could also improve your credit score, especially if you manage to pay down the balance to $0.

Regardless of which method you choose, stick to paying down your debt, and if you manage to pay off a significant amount of credit card, you will notice a boost in your credit score.

Why Does Paying Off An Installment Account Often Result In a Credit Score Drop?

When you pay off an installment loan, you'd expect an increase in your credit score. Sadly, most of the time, when paying off an installment account such as a personal loan, car loan, student loan, home mortgage, or other debt where you have a fixed payment every month, you will notice a drop in your credit score.

The amount of points your score will drop differs from one person to another, but a small drop is to be expected whenever you close an installment account. Experts believe that this drop occurs because paying off a personal loan, car loan, home loan, or any other type of loan essentially involves closing an installment account.

Whenever you close an installment account, you're reducing the diversity of your open accounts, which affects your credit mix. Your credit mix accounts for 10% of your credit score. For this reason, your score may drop by a few points.

That said, such a drop is likely going to be temporary and your credit score should rebound within a few months of continuing to make all of your credit card and loan payments on time.

1. Does paying down credit card debt increase your credit score?

Yes, paying down credit card debt can increase your credit score because it reduces your credit utilization (how much of your available credit you're using), which can boost your credit score. Your credit utilization makes up 30% of your credit score and rewards you when you lower the balances on credit cards. So, yes pay down your credit cards and you should see a boost in your credit score.

2. Does paying off my car increase my credit score?

Paying off your car is unlikely to increase your credit score. In fact, when paying off your car, you're essentially closing an installment account, which usually results in a temporary drop in your credit score. That said, your credit score should recover within a few months so long as you made all of the payments on your car loan.

3. Why did my credit score drop after paying off debt?

Typically, paying down credit card debt results in a credit score increase, especially if you were carrying a lot of credit card debt. This is so because paying down your credit card will likely decrease your credit utilization rate, increasing your credit score.

4. How fast does your credit score go up after paying off credit card debt?

Your credit score may go up within 30 to 60 days after paying off a credit card. This is so because it takes some time for your credit card issuer to report the new account status to the credit reporting bureaus.


Can I Pay For Health Insurance With a Credit Card?

If you're enrolled in a health insurance plan, you might be wondering whether you can pay your monthly health insurance premiums using a credit card? We will provide you with everything you need to know about paying your health insurance premiums using a credit card.

Can I Pay For Health Insurance With a Credit Card?

Yes, you can pay for health insurance with a credit card as most major health insurance providers accept credit card payments for insurance premiums. Most card issuers permit you to use a credit card to pay for health insurance premiums and medical bills.

Here is a list of health insurance comapnies that accept credit card payments for health insurance premiums:

  1. Kaiser
  2. Anthem Blue Cross
  3. Aetna
  4. Cigna
  5. Humana
  6. Health Net
  7. United Healthcare
  8. Well Care

That said, you should check with your health insurance provider as some providers do not allow the use of credit cards for health insurance premiums. Some insurance providers will only allow you to pay with a debit card or via your checking account. Having said that, most major providers will allow you to pay your insurance premiums and insurance deductible via credit card.

Should You Pay Health Insurance Premiums and Deductibles With a Credit Card?

Now that you know that paying health insurance premiums and deductibles with a credit card is possible, should you pay them using a credit card? There is nothing wrong with paying your insurance premiums and deductibles with a credit so long as you can afford to make the minimum payment on your credit card.

In fact, paying for you health insurance with a credit card can be a great way to earn points and perk via your card issuer. Also, using a credit card is often the most convenient way of paying for health insurance. So, go ahead and pay your health insurance premiums and deductibles with a credit card.

The only drawback for paying for health insurance with a credit card is that you will pay interest on the premiums if you don't pay off your credit card at the end of your billing cycle. This is so because all card issuers charge you interest on your credit card balance if it's not paid off by the end of your billing cycle. So, to avoid paying interest on your health insurance payments, you should pay off your card.

The second thing that you should keep in mind when paying your health insurance with a credit card is that some, but not all, health insurance comapnies charge you a convenience fee for using a credit card. This fee ranges from 1% to 3% of the total amount that's due. If you want to avoid paying this fee, you should consider paying with a debit card or your checking account. That said, not all health insurance providers charge a convenience fee for using a credit card.

Does Using a Credit Card To Pay For Health Insurance Affect Your Credit?

Using your credit card to pay for health insurance can affect your credit because it can increase your credit utilization. Credit utilization refers to how much of your available credit you use. Whenever your credit utilization increases, your credit score drops. So, when you charge health insurance premiums or deductibles onto your credit card, you will use more of your available credit, potentially lowering your credit score.

As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30% credit utilization. If you use more than 30% of your credit, you will notice a significant drop in your credit score.

So, if you're already using too much of your available credit, you should avoiding using your credit card to pay for health insurance as it can lower your credit score.

However, if you're utilizing little of your available credit, using your card to charge health insurance bills will likely have no impact on your credit.

Additionally, if you choose to charge your health insurance on your credit card, you should make sure to pay your monthly bills on time. This is so because your payment history accounts for 35% of your credit score.

If you pay your bills on time, your credit score will increase. However, missing even a single payment on your credit card could cause significant damage to your credit.

So, only make charges on your credit card if you can afford to at least make the minimum payment on your credit card at the end of your billing cycle. If you cannot, don't use your credit card as it could lead to damage to your credit.

What Are The Benefits of Using a Credit Card to Pay For Health Insurance

The main benefit of charging health insurance premiums and bills to your credit card is that you are able to buy yourself some extra time to pay them off since you're borrowing money to pay them. That is, you can keep extra cash in your checking or savings account for other items that cannot be paid via credit card.

That said, if you choose to use a credit card for health insurance, you should make sure that you have enough money in your account to at least make the minimum payment on your credit card.

Failing to make the minimum payment on your credit card will cause significant, irreparable damage to your credit. So, be careful when using a credit card to pay for health insurance.

Also, you should keep in mind that if you don't pay off the balance on your credit card after charging medical expenses to it, you will need to pay interest on the money you've borrowed.

Interest rates on credit cards tend to be high, costing you a lot of money in the long run. There is an exception and this is if you have a credit card with a 0% APR where you aren't charged any interest for a limited period of time. That said, if you're using a 0% APR, you should try to pay off your credit card balance before your card issuer starts charge you interest on the money you've borrowed for medical insurance expenses.

Frequently Asked Questions (FAQs)

1. Can I use a credit card to pay health insurance premiums?

Yes, you can use a credit card to pay health insurance premiums so long as your health insurance provider accepts credit cards. Most large health insurers allow their customers to pay using credit cards. There are some states that limit credit cards use, but most allow them as a form of payment. Contact your health insurance provider and ask them if they allow you to pay via credit card.

2. Does paying health insurance with a credit card build credit?

Paying your health insurance premiums does not on its own build credit. You must use your credit cards responsibly, by making your payments on time and keeping your account balance low to build credit.

3. Can I use my credit card for medical expenses?

Yes, many health insurance providers allow their customers to pay medical expenses via credit card. You should check with your medical provider and ask them whether they accept payment via credit card. If they do, there is usually nothing keeping you from charging medical expenses on your credit card.


How Does Credit Card Interest Accrue?

If you have a credit card, you might be wondering how is your credit card's interest calculated and how does it accrue. The post provides you with everything you need to know about how credit card interest accrues.

How Does Credit Card Interest Accrue?

If you don't pay your credit card in full at the end of your billing cycle, interest on your credit card balance accrues on a daily basis, meaning at the end of the day, you're charged interest on the balance and the interest charged becomes part of the balance at the end of the day. This continues throughout your billing period.

You can calculate the amount of interest you're being charged by dividing your APR by 365 days and then multiplying the resulting number by your current credit card balance. This should give you the amount of interest you owe on a daily basis.

For example, if you have a $1,000 credit card balance on a credit card with a 17% APR, you can calculate how much daily interest accrues by dividing 0.17 by 365 days, giving you $.000466. You then multiply your $1,000 by $0.000466, giving you a total of $0.466 of interest per day. To figure out your monthly interest rate multiply the resulting number by 30 days, giving you a total of $1,013.97 at the end of the month.

You can use this method to calculate how much interest accrues on your balance on a daily basis or a monthly basis.

CSP Pro Tip: That said, you should be careful when calculating the amount of interest you owe on a monthly basis because with some credit cards, interest compounds on a daily basis, meaning that at the end of the day, interest is charged and becomes part of the balance for the next day. This continues throughout your entire billing period, making it difficult for some people to pay off their credit cards. Calculating compounding interest can be quite complicated.

For those of you who are new to interest, interest refers to the amount of money that you will pay for borrowing money from your card issuer to purchase goods or services.

How Much Interest Are You Paying On Your Credit Card Balance?

You can figure out how much interest you're paying on your credit card balance by looking at the Annual Percentage Rate, also known as APR. APR is not standard among all cardholders. In fact, every person has a different APR, depending on his or her creditworthiness.

Although APR appears as an annual rate, credit card issuers apply the APR rate on your balance at a daily rate.

For example, if you have a credit card with an APR of 17%, this means that you will pay 17% of the balance on your credit card in interest. So, if you were to keep a balance of $1,000 on your credit card for a year, you would end up paying $170 in interest over the course of a year.

When Does Interest Begin Accruing On Your Credit Card?

Card issuers often give their cardholder a grace period during which to pay the entire balance before the due date. If the cardholder does not pay off the balance before the due date, interest begins accruing on the balance. So, if the balance is paid off by your credit card's due date, no interest is charged.

But, if you do not pay off the entire balance, interest begins accruing on the remaining amount that's due until it's ultimately paid off. In the event that you fail to make the payment, your card issuer may charge you a penalty interest rate that is significantly higher than your regular APR.

For example, if your regular APR is 15% and you fail to make your payment on time, your card issuer may charge you a penalty APR of 29.99% instead.

Card issuers and financial institutions know that most people leave a balance on their credit cards, and so interest is very lucrative for card issuers. In fact, American cardholders have more than $6,000 in credit card debt, so it makes sense to understand how credit card interest works.

Interest Accruing on Credit Card Cash Advances

If you use your credit card for regular purchases, you are charged the regular APR. However, if you make a cash advance, a separate, higher APR applies only to the amount you took out as a cash advance. For example, if you have a Bank of America Credit Card, the regular APR maybe 15.99% while the APR for cash advances may be 23.99%, making it significantly more expensive to use your credit card for a cash advance. In addition to paying a higher APR on cash advances, card issuers often charge a fee for taking out a cash advance, ranging from 3% to 5% of the cash advance amount. For example, if you were to take out a $1,000 cash advance, you may be charged $50 for the cash advance, and a higher interest may immediately apply to the cash advance amount.

How To Avoid Having Interest Accrue On Your Credit Card Balance?

You can avoid having interest accrue on your credit card balance by paying your balance before the due date. In fact, most credit card issuers provide cardholders with a grace period of approximately one month to pay off the balance. If the balance is paid off within the grace period, no interest accrues on the balance. However, if you leave a balance on your credit card, interest will begin accruing after the payment due date.

The second option to avoid paying interest on your credit card balance is to open a 0% APR credit card. There are many credit cards on the market that promise an introductory 0% APR credit card, allowing users to avoid paying interest on their credit card balance for a limited period of time that usually ranges from 6 months to 18 months. After the introductory APR period ends, you are required to pay interest on the balance left on the card.

In the event that you don't want to or cannot open a 0% APR credit card, you should consider paying more than the minimum payment on your credit card. Paying more than the minimum payment reduces the amount of interest you will pay on the balance while reducing the overall balance on your credit card.

Paying down the balance on your credit card will not only lower the amount of interest you pay, but it can also potentially improve your credit score.

This is so because paying down your credit card balance reduces your credit utilization. Your credit utilization makes up 30% of your credit score, the lower your credit utilization (how much of your available credit you're using), the better your credit score will be.

So, paying down the balance on your credit card can potentially improve your credit score in addition to reducing the amount of interest you pay on the balance.

What Factors Determine the APR On Your Credit Card?

The APR that will apply to your credit card depends on your creditworthiness. So, the higher your credit score and the higher your income, the better the APR that you will qualify. Likewise, having a low credit score may get you approved for a credit card, but your APR will likely be high. Typically, those who have excellent credit (740 or higher), will be approved for the lowest possible APR. However, if your credit score is less, you will usually pay a higher APR.

For example, a credit card issuer may advertise credit cards as having an APR of 11.99% to 20.99%, applications with the highest credit ratings will receive an APR at the lower end, while other applications will receive an APR towards the higher end of the spectrum.

How Can You Pay Off Your Credit Cards To Avoid Paying Interest?

You should pay your credit card bill before the payment due date. You should not wait until the day before the due date to pay your credit bill. Paying by the due date allows you to avoid paying any interest on your credit card balance.

Also, if you have the money, you should try paying off purchases as soon as you make them, or try making multiple payments throughout the month to keep your credit card balance at a minimum.

If you don't have the funds to pay off your credit card entirely, you should explore the option of applying for a balance transfer card with 0% APR. A balance transfer card can be a great tool to pay off your credit card balance quickly. This is so because by transferring your balance to a credit card that does not charge interest, more of the money you pay towards lowering your balance rather than going towards interest. This helps you quickly pay down your balance while costing you less money.

Frequently Asked Questions (FAQs)

1. Is credit card interest added daily?

Yes, most card issuers compound interest on a daily basis, meaning you're charged interest on a daily basis and that interest is added to the balance. You then pay interest on the entire balance, including the newly added interest. This process continues as long as you carry a balance on your credit card.

2. Do I get charged interest if I only pay the minimum payment?

If you only pay the minimum payment on your credit, leaving a balance on your credit card, you will pay interest on the remaining balance if it's not paid off by your payment due date. If you pay the balance before your due date, you will not be charged any interest. But, if you pay after your due date, you will be charged interest.

3. Is credit card interest compounded daily or monthly?

Most credit card issuers compound interest on a daily basis, making it expensive to carry a balance on your credit card. To avoid paying a lot of interest, you should strive to pay off your credit card at the end of the month before the payment due date to avoid paying any interest.

4. What is the usual minimum payment for a credit card?

The minimum payment on your credit card is usually 1% to 2% of your credit card balance if your balance exceeds $1,000. Typically, if your balance is below $1,000 you're minimum payment will be set as a minimum of $25. Paying only the minimum payment on your credit card makes it very difficult to pay off your balance within a short period of time. For this reason, most card issuers recommend making more than the minimum payment on your credit card.


Can You Remove Late Payments From Your Credit Report After Making the Payments?

If you've missed a payment on a credit card, personal loan, car loan, on any other type of account, can you remove the late payment from your credit report by making the payments? We will answer this question in much detail below.

Can You Remove Late Payments From Your Credit Report After Making The Payments?

No, once a payment is reported as late on your credit report, making the payment will not remove it from your credit report. The late payment mark will remain on your credit report for 7 years from the date that you missed the payment. After the 7 year period, the late payment will automatically be removed from your credit report. So long as a late payment mark appears on your credit report, it will continue to drag down your credit score until it's ultimately removed from your credit report.

That said, lenders don't usually report late payments until the payment is at least 30 days late. So, if less than 30 days have passed since you missed your payment, paying it before it's reported to the credit bureaus will prevent the late payment from appearing on your credit report.

However, if more than 30 days have passed since you missed your payment, and the payment was reported to the credit bureaus, making the payment on your account will not remove the late payment mark from your credit report.

Once a late payment is added to your credit report, it will remain on your credit report for 7 years from the date that you missed your payment. After the 7 year period passes, the late payment will automatically be permanently removed from your credit report.

So long as a late payment appears on your credit report, it will continue to drag down your credit score. However, as a late payment ages, its impact on your credit score will begin to lessen until it's ultimately removed from your credit report.

Can You Dispute a Late Payment To Have it Removed From Your Credit Report?

If a late payment appears on your credit report, you can have the late payment removed by filing a dispute with the credit reporting bureaus to have the mark removed from your credit report. However, to successfully have the item removed, the information you're disputing must be wrong or incorrect. Disputing valid information that's accurate will not remove it from your credit report.

After you file a dispute to have an incorrect late payment to be removed from your credit report, the credit bureau will conduct an investigation to determine whether the information is indeed wrong.

If the investigation reveals that the information is indeed inaccurate, the negative payment mark will be removed from your credit report.

However, if the investigation reveals that the information is indeed accurate, the late payment will remain on your credit report and will not be removed.

So, you should only dispute information, such as a late payment on your credit report if you have reason to believe that the information being reported is inaccurate. This is so because valid negative information will not be removed from your credit report.

Most negative information, including late payments, remain on your credit report for 7 years from the date you first became delinquent on the account.

When Are Late Payments Added To Your Credit Report?

Usually, your creditor or lender will report a payment as late to the credit reporting bureaus after 30 or more days have passed since you missed the payment. If you make the payment within 30 days of missing it, the payment is unlikely going to be reported as late on your credit report. However, if more than 30 days pass since you've missed your payment, the payment will be added as late on your credit report.

If you continue to fail to make payments on your credit card, personal loan, car loan, or any other type of debt, first a 30-day late mark is added, then a 60-day late mark, and then a 90-day late mark, causing several late payment marks to be added to your credit report.

A single missed payment can lower your credit score by over 100 points. This is so because your payment history accounts for 35% of your credit score. Making your payments on time will improve your credit, and missing even a single payment can cause significant damage to your credit score. So, you should strive to make all of your credit card and loan payments on time to maintain the best credit score possible.

Periodically Review Your Credit Report

If you're not already in the habit of reviewing your credit report, you should periodically review your credit report. Oftentimes, when reviewing your credit report, you may find inaccurate information being reported on your credit report.

If you find wrong information being reported on your credit report, you should dispute that information to have it removed from your credit report.

For example, if you find a late payment that does not belong to you or was added in error, you can file a dispute to have it removed from your credit report.

Although removing wrong payments may be possible, removing a valid late payment is very difficult as the credit bureaus will conduct an investigation by reaching out to the furnished (provider) of information to verify the information. If the late payment mark is valid, it will not be removed from your credit report.

Frequently Asked Questions (FAQs)

1. Can you remove late payments from your credit report?

You can only remove late payments that are added to your account in error or contain the wrong information. Valid late payments cannot be removed from your credit report. If there is a late payment notation that was added in error or contains a mistake, you can file a dispute with the credit reporting bureaus to have it removed from your credit report.

2. Can you remove late payments from a closed account?

No, even if your account is closed, if it contains a late payment, the late payment cannot be removed from your credit report. In fact, late payments on closed accounts will remain on your credit report for 7 years from the date you missed the payment. After the 7 year period, the late payment will be removed from your credit report.

3. Does paying off an account remove a late payment from my credit report?

No, paying off a late account where the late payment was reported to the credit reporting bureaus will not remove the late payment from your credit report. It will remain on your credit report for 7 years from the date you missed your payment.


Does Paying Car Insurance Affect Credit?

If you're like most people you probably have a car and you likely have car insurance because it's illegal to drive without it. So, does paying your car insurance build credit? We will answer this question in more detail below.

Does Paying Car Insurance Build Credit?

No, paying car insurance does not build credit because your monthly car insurance payments are not reported to the credit reporting bureaus. So, although paying car insurance may seem like it builds credit, it does not. Making your payments on time or failing to make them will have no impact on your credit score.

That said, although paying car insurance does not build credit if you fail to make your car insurance payments on time, the money that you owe your insurance provider could be sold to a collection agency. The collection agency can cause extensive damage to your credit by adding a collection account to your credit report.

A single collection account can drop your credit score by 100 or more points. The better your credit, the bigger the drop will be. If a collection account is added to your credit report, it will remain on your credit report for 7 years from the date you missed your insurance payment. So long as a collection account appears on your credit report, it will drag down your credit score until it's ultimately removed after 7 years.

Paying your car insurance with a credit card and paying off your credit card on time can help you indirectly build good credit. This is so because your payment history, and not your insurance payments, account for 35% of your credit score. So, when you use your credit card responsibly and make timely payments, this will build your credit. Just make sure to make your payments on time as missing even a single payment on your credit card could cause significant damage to your credit.

Does Paying Car Insurance Late Affect Credit?

No, making a late car insurance payment does not affect your credit because car insurance payments are not reported to the credit reporting bureaus. So, whether you make your payments, pay them late, or fail to make them, such actions do not affect your credit. However, if your insurance provider sells the outstanding amount due to a collection agency, your credit can be affected if a collections account is added to your credit report. This is so because collection accounts are derogatory and their addition to your credit report can significantly lower your credit score.

Why Doesn't Paying Car Insurance Build Credit?

Paying car insurance does not build credit because your insurance payments are not reported to the credit bureaus. Since your payments are reported, they are not factored into your credit score. So, whether you make all of your car insurance payments on time or fail to make any of them, there will be no direct impact on your credit score.

However, if you fail to pay your car insurance payments, there may be an indirect impact on your credit score in the event that your car insurance provider sells the outstanding amount that due to a collection agency, causing a collection account to appear on your credit report.

A collection account is a negative item that can cause a significant drop in your credit score, so it's best to avoid it to maintain good credit.

Does Missing a Car Insurance Payment Affect Your Credit?

No, missing a car insurance payment will not directly affect your credit score because payments are not reported to the credit reporting bureaus. However, if you miss several payments, your car insurance provider may sell the outstanding amount that's due to a collection agency. The collection agency can then cause significant damage to your credit by adding a collection account to your credit report. A single collection account can drop your credit score by 100 or more points. So, to avoid a collection account from damaging your credit, you should make all of your insurance payments on time. In addition to a collection account being added to your credit report, failing to make car insurance payments can result in the cancellation of your car insurance policy and the assessment of late fees.

Can You Use a Credit Card To Make Insurance Payments?

Yes, most insurance providers allow you to use a credit card to make your insurance payments. That said, some insurance providers may charge you a convenience fee for using a credit card. To avoid paying the convenience fee, you should use a checking account or debit card to pay your insurance. That said, most major insurance providers allow you to pay insurance using a credit card with no added fee.

Does Paying Car Insurance With a Credit Card Build Credit?

Paying car insurance with a credit card can help you build credit. For example, if you use a credit card to make your car insurance payments and you make your credit card payments on time, you will build good credit because you're establishing a positive payment history for the account. That said, it's not the fact that you're making your insurance payment that's boosting your credit, but rather the fact that you're using your credit card and making timely payments on your card that helps your credit score.

However, if you use your credit card to pay your insurance premiums, and you fail to make your credit card payment on time, you can cause significant damage to your credit as a late payment mark will be added to your credit report, significantly lowering your credit score. If a late payment is reported on your credit report, it will remain on your credit report for 7 years. After the 7 year period, the late payment mark will automatically be removed from your credit report. Clothing an account with a late payment will not remove the mark from your credit report. So, make sure to make your credit card payments on time regardless of whether you're using them to pay insurance.

The Bottom Line

Paying car insurance does not help nor does it impact your credit because insurance providers do not report your payments to the credit reporting bureaus. So, whether you make your payments or fail to make them, it will not directly impact your credit. However, there is one situation where failing to pay insurance premiums could damage your credit. If you fail to make enough insurance payments, your insurance provider may sell the outstanding debt to a collection agency that can damage your credit by adding a collection account to your credit report while collecting the outstanding money that you owe. So, to avoid damage to your credit, you should make your premium payments on time.

Frequently Asked Questions (FAQs)

1. Does paying auto insurance build credit?

No, paying auto insurance does not build credit because auto insurance payments are not reported to the credit reporting bureaus. As such, making or failing to make auto insurance payments has no impact on your credit.

2. Does missing my auto insurance payment hurt my credit?

No, missing an auto insurance payment does not hurt your credit because auto insurance payments are not reported to the credit bureaus. However, if your account goes to collections, a collection account can be added to your credit report, significantly lowering your credit score.

3. How many points can a collection account lower my credit score?

A single collection account can lower your credit score by 100 or more points. The higher your credit score, the bigger the drop will be.

4. Does paying monthly auto insurance help my credit score?

No, paying monthly auto insurance will not help your credit score because auto insurance payments are not reported to the credit reporting bureaus. Therefore, paying your car insurance will not improve your credit.


Does Paying For Internet Build Credit?

If you're like most Americans, you likely have a home internet plan to provide you with internet while you're at home, and so you might be wondering, does paying for internet build credit? This post provides you with everything you need to know about internet and whether it builds credit.

Does Paying For Internet Build Credit?

Paying for internet does not build credit because ISPs (internet service providers) do not report payments for internet to the credit reporting bureaus. Therefore, even if you're making all of your internet payments on time, you will not build any credit since your payment history does not appear on your credit report. Likewise, missing payments on your internet does not damage your credit because payments are not reported to the credit bureaus and therefore do not appear on your credit report.

That said, although your missed internet payments are not reported to the credit bureaus and don't appear on your credit report, if you leave an internet bill unpaid for too long, it can indirectly hurt your credit.

This is so because leaving an internet paid for too long may not only cause your internet to be cut off, but it may result in the outstanding amount that's due to be sold to a collection agency. The collection agency can then cause damage to your credit by placing a collection account on your credit report to collect the debt from you.

A single collection account can lower your credit score by 100 or more points and will remain on your credit report for 7 years from the date you first failed to pay your internet bill. When a collection account is first added to your credit report, it will cause a big drop in your credit score.

However, as the collection account ages, its impact on your credit score will lessen until it's automatically removed from your credit report after the 7 year period.

Once a collection account appears on your credit report, it cannot be removed from your credit report unless there is an error in the information being reported on your credit report.

Even paying a collection account will not remove it from your credit report. In fact, a paid and unpaid collection account affects your credit score the same. So, to avoid having your internet bill from being sent to collections, you should pay the outstanding amount that's due before it's sent to collections.

Why Doesn't Paying Your Internet Bill Build Credit?

Paying your internet bills does not build credit because your payments are not reported to the credit reporting bureaus. Since they're not reported to the credit bureaus, they do not appear on your credit report, and therefore they have no impact on your credit score.

So, whether you make all of your internet bill payments on time or miss them, there will be no impact on your credit score. Unpaid internet bills can affect your credit score if they're sent to a collection agency because the collection agency can cause damage to your credit by placing a collection account on your credit report.

That said, if you use a credit card to pay your internet bill, you can build credit by using your credit card responsibly, keeping your credit card balance low, and making your credit card payments on time. When you use a credit card to make your internet payments, the internet payments are not what is helping your credit, but rather your responsible use of the credit card, and making timely monthly payments is what helps your credit.

Making timely credit card payments improve your credit because your payment history accounts for 35% of your credit score. So, making credit card payments on time can boost your credit score. That said, missing even a single payment on your credit card can cause significant damage to your credit. So, if you choose to pay your internet using your credit card, make sure to make your credit card payment on time to build good credit.

Using Experian Boost To Report Your Internet Bills On Your Credit Report

If you make your internet payments on time and you want your credit to benefit, you should explore the option of signing up for Experian Boost. Experian Boost allows you to report utility bill payments, such as internet payments on your credit report to use them to boost your credit score. Experian Boost is very easy to use, you just connect it to your bank account, it scans your bank statements for bill payments that you can use to build credit, and it adds them to your credit report to boost your credit score. It works immediately. So, if you want to boost your credit score by a few points using your internet bill, explore Experian Boost.

Importance of Paying Your Internet Bill On Time

As previously mentioned, although paying your internet bill on time does not build credit since your internet payments are not reported to the credit bureaus, as such they have no impact on your credit score. You should pay your home internet and cell phone internet bills on time to avoid having your ISP sell your unpaid bill to a debt collection agency. Debt collection agencies can cause damage to your credit by adding a collection account to your credit report when attempting to collect the unpaid debt from you. To avoid this, pay your internet bill on time. If you're having difficulty paying your bill, contact your ISP and ask them about the options you have. This is better than having your bill sent to collections.

Frequently Asked Questions (FAQs)

1. Does paying for Wifi Build Credit?

No, paying for WiFi does not build credit because internet payments are not reported to the credit reporting bureaus. Therefore, even if you make all of your payments on time, doing so will not improve your credit.

2. Does internet affect your credit score?

Internet does not affect your credit score because your ISP does not report your payments to the credit reporting bureaus. Therefore, making payments will not improve your credit, and late or missing payments do not appear on your credit report nor do they affect your credit score.

3. Does paying your phone bill build credit?

No, paying your phone bill does not build credit because your phone provider does not report your payments to the credit bureaus. Therefore, making or missing payment has no effect on your credit score.

4. Does paying internet bills late hurt my credit?

No, paying internet bills late does not hurt your credit because your payments are not reported to the credit bureaus. However, if you delay paying your internet bill for too long, your ISP may sell the unpaid balance to a collection agency. The collection agency can cause damage to your credit by adding a collection account to your credit report.


Does Paying Extra On Mortgage Help Credit Score?

If you have a mortgage, you might be wondering whether making extra payments on your mortgage will help your credit score? This post answers this question and provides you with everything you need to know about how your mortgage affects your credit score.

Does Paying Extra On Mortgage Help Credit Score?

Paying extra on your mortgage is unlikely to help your credit or provide an additional boost. That said, making on-time mortgage payments creates an excellent payment history that helps your credit. This is so because your payment history accounts for 35% of your credit score. So, making timely mortgage payments boosts your credit score. However, paying extra on your mortgage is unlikely to provide additional help to your credit score.

That said, although making additional payments on your mortgage does not boost your credit score, keeping your mortgage account open and continuing to make payments on it will help you establish excellent credit. This is so because your payment history is the most important factor affecting your credit score.

Also, having an open mortgage account that's in good standing provides a boost to your credit score because your credit score factors in the diversity of your accounts. Having a mortgage account boosts the diversity of your accounts, contributing to a better credit score.

If you're considering paying off your mortgage account early, you should keep in mind that paying off your mortgage closes the mortgage account on your credit report, reducing the diversity of accounts on your credit report, possibly slightly lowering your credit score. So, making extra payments to pay off your mortgage early can actually result in a temporary lowering of your credit score.

That said, if you do pay off your mortgage and your credit score drops a few points, rest assured that the small drop is temporary and your credit score should recover within a very short period of time.

What Are The Advantages of Paying Extra On Your Mortgage?

The biggest advantage to paying extra on your mortgage is that you might be able to pay off your mortgage earlier than someone who is only making the mortgage payment, allowing you to get out of debt faster. Getting out of debt faster is a great way to free up some of your income for other things that you may want to purchase or invest in.

Also, paying off your mortgage early can potentially save you a ton of money on interest. Whenever you pay off loans or other debts in a shorter period of time, you are likely going to save a ton of money on interest. You can use the money you've saved on paying interest for other purchases or investment purposes.

Thing to Consider Before Making Extra Payments On Your Mortgage to Pay it Off Early

Before paying extra to pay off your mortgage early, you should consider whether your mortgage includes a prepayment penalty. A prepayment penalty is a penalty that you'll have to pay for paying off your mortgage earlier than the expiration of your term. For example, if you have a 15-year mortgage and you pay it off in 10 years before 15 years have elapsed, you may be liable for a pre-payment penalty.

Prepayment penalties vary from one lender to another, but you should consider whether you'll save money by off your loan early after including the prepayment penalty in your calculations or whether you should continue to pay off your loan according to the schedule set for you by your lender. If you'll save money, it might be worth it to pay off your loan early. However, if you will end up paying significantly more by paying off your mortgage early, it might be worth it to hold off on paying it off.

The second thing that you should consider is whether you can use the money you already have on hand to make more than you would save by paying off your mortgage early. For example, if your bank offers savings accounts that pay more interest than the interest you're paying on your loan, you should consider placing your money in the savings account as you would make more money by doing so.

Additionally, you should consider other types of investments, such as purchasing stocks that could appreciate with time, earning you more money than you would save by using the money to pay extra on your mortgage. If you're young and you can take on more risk, you can choose an aggressive investment strategy that promises higher payouts, or if you're nearing retirement, you can choose a safer investment strategy that pays more than paying off your mortgage early.

Should You Pay Off Your Mortgage Early?

There is nothing more liberating than paying off a mortgage early. However, should you pay off your mortgage early? We've provided you with some things to consider before setting aside money to make extra payments on your home loan. If you have extra cash and you want to pay off your mortgage early, you should do so if you are not able to use the money to make more money than you would save by paying off your mortgage early.

How Does Paying Off Your Home Loan Early Affect Your Credit Score?

Paying off your mortgage early is unlikely to improve your credit score by much. In fact, paying off your home loan early could temporarily lower your credit score since it can reduce your credit mix (diversity of open accounts). So, keeping your mortgage open for longer can actually contribute to a better credit score. But, you should keep paying a mortgage simply to maintain your high credit score. Closing a home loan account will result in a small and temporary drop in your credit score. Your credit score will likely recover within a short few months of continuing to make payments on your other open loans and credit cards.

That said, having a mortgage that's paid off will continue to provide a boost to your credit score, especially if you've made all of the payments on your account. This is so because paid off mortgages where you have missed no payments remain on your credit report for 10 years after you've paid off the mortgage. So long as the paid-off mortgage appears on your credit report, it will continue to provide a boost for your credit score.

Frequently Asked Questions (FAQs)

1. Why did my credit score drop when I paid off my mortgage early?

Your credit score may have dropped when you paid off your mortgage because paying off a mortgage closes a mortgage account on your credit report. When you close a mortgage account, you reduce your credit mix (diversity of open accounts). Reducing your credit mix can lower your credit score since your credit mix accounts for 10% of your credit score. For this reason, your credit score may have dropped. That said, a drop in your credit score after paying off a mortgage is likely temporary in nature. Continue making all of your other payments and your credit score should rebound within a very short period of time.

2. Does paying additional principal on a mortgage help my credit?

No, paying additional principal on your home loan is unlikely going to help your credit. Making your payments on time helps your credit, paying extra does not. That said, if you have extra money to pay off your mortgage faster, you could save a significant amount of money in the long run.

3. What happens if I pay extra money towards the principal on my mortgage?

If you pay extra towards your principal, you could finish paying off your home earlier, saving a significant amount of money on interest. That said, make sure to designate your payment as a principal payment to pay down the principal on your mortgage.


Does Paying Interest Build Credit?

If you have a persoanl loan, student loan, credit card, or auto loan, you might be wondering whether paying interest on such debts build credit? This post provides you with everything you need to know about interest and building credit.

Does Paying Interest Build Credit?

Paying interest on a loan, credit card, or any other type of debt does not build credit. That said, making timely payments on personal loans, credit cards, auto loans, and even student loans does build credit because your payment history accounts for 35% of your credit score.

There is a common myth out there that paying interest builds credit, but this is far from the truth. Paying interest does not build credit, it's the act of borrowing money and paying your monthly payment on time that builds credit.

In fact, the credit scoring models do not take interest into account when calculating your credit score. Instead, the biggest factor that affects your credit score is your payment history. Your payment history accounts for 35% of your credit score.

So, if you borrow money, whether via personal loan, student loan, auto loan, or credit card and you make your monthly payments on time, you will build good credit. So, although you're paying interest on the money you've borrowed, paying interest has no impact on your credit. Instead, it is the act of making timely payments that build credit.

For example, if you had a 0% interest credit card and you borrowed money and repaid, you would still build credit by making the payment on time even though you're paying no interest.

So, the next time your friend tells you that you should keep a balance on your credit card to build credit, you now know that keeping a balance to pay interest does not build credit. Rather, focus on making your payments on time and keeping your balances low will help you build credit.

Why Doesn't Paying Interest Build Credit?

Paying interest does not build credit because the interest you pay is not reported to the credit reporting bureaus and the credit scoring models do not factor in the interest that you pay into your credit score. So, you could be paying a very high interest rate and it will have no impact on your credit score.

So, paying interest is not a smart move, you should strive to pay as little interest as possible because that's only money you're paying to borrow money, it has no impact on your credit whatsoever. The smart move is to look for accounts and loans that charge you as little interest as possible so that you can borrow money for less money.

Does Carrying a Balance On Your Credit Card Build Credit?

There is another common myth out there that if carrying a balance on your credit card is good for your credit score because you pay interest. We are here to set the record straight and tell you that carrying a balance on your credit card is not good for your credit score.

Typically, the credit scoring models prefer it when you utilize as little of your available credit as possible. This is so because your credit utilization accounts for 10% of your credit score. So, the less credit you use, the better your credit score will be.

So, if you're leaving a balance on your credit card to improve your credit, you should instead pay off your credit card for the best impact on your credit score.

As a rule of thumb, you should utilize less than 10% of your available credit and never exceed 30% credit utilization.

If you exceed 30% credit utilization, you will notice a significant drop in your credit score.

For example, if you have a credit card with a $10,000 credit limit, you should keep your balance below $1,000 for the best impact to your credit score. However, if your balance exceeds $3,000 or 30% of your credit limit, you will notice a drop in your credit score.

So, if you have the cash, pay down your credit card balances to improve your credit score because the credit scoring models like it when you pay down balances and keep them as low as possible.

As a rule of thumb, it's best to charge only as much as you can afford to pay off every month because this will help you keep your credit utilization as low as possible, providing a decent boost to your credit score.

What Factors Impact Your Credit Score?

Let's discuss the most important factors that affect your credit score:

1. Payment History

As previously mentioned, your payment history accounts for 35% of your credit score. So, making your payments on time is literally the best thing you can do to improve your credit score and build excellent credit. That said, missing even a single payment on a credit card or loan can cause significant damage to your credit. So, make sure to make your car loan, credit card, and student loan payments for the best boost to your credit score.

2. Credit Utilization

The second most important factor affecting your credit score is your credit utilization rate. This factor accounts for 30% of your credit score, and so you should keep your credit utilization as low as possible for the best impact to your credit score. You can calculate your credit utilization by dividing the total balances of your credit cards by the total credit limits of your credit cards. Typically, you should use no more than 10% of your credit limit and never exceed 30% credit utilization. If you use more than 30% of your available credit, you will notice a significant drop in your credit score. So, keep your balances low now that you know that paying interest does not build credit.

3. Length of Credit History

The third factor impacting your credit score is the average age of all of your accounts. This factor accounts for 15% of your credit score, and the older the ages of your accounts, the better your credit score will be. This is so because the credit scoring models reward those who have older accounts open. So, if you happen to have a credit card that you rarely use, but it's an old account, you should try to keep it open for the best impact to your credit score.

4. Credit Mix

The fourth factor impacting your credit score is your credit mix. Your credit mix makes up 15% of your credit score and it refers to the diversity of the type of accounts you have on your credit report. For example, if you have diverse accounts, such as auto loans, student loans, credit cards, and a mortgage, this is the diversity that this factor likes and rewards you for having.

5. New Credit

The fifth and final factor affecting your credit score is the number of new accounts you've opened and hard inquiries that you have on your credit report. This factor makes up 10% of your credit score. The less new accounts you've opened and the less hard inquiries you have on your credit report, the better your credit score will be. Whenever you apply for a credit card or loan, a hard inquiry is added to your credit report, lowering your credit score. So, refrain from applying for too many accounts within a short period of time to improve your credit score.

The Bottom Line

The bottom line is that paying interest on things such as credit cards, personal loans, car loans, and other types of debt does not build credit. Paying your credit cards and loans on time is what builds your credit. You should strive to pay as little interest as possible because that will save you money. If you have any general questions or comments, please feel free to leave them in the comments section below.

Frequently Asked Questions (FAQs)

1. Does paying interest hurt your credit score?

No, paying interest is a very common part of borrowing money and repaying it, so it does not hurt your credit score. Also, the credit scoring models do not take into account the interest you pay to borrow money, so it does not hurt, nor does it help your credit score.

2. What payments help build credit?

Payments on items, such as credit cards, personal loan, car loans, mortgages, and student loans build credit.

3. Is it better to pay off your credit card or keep a balance?

It's almost always better to pay off your credit card than keep a balance for your credit score. This is so because lowering your credit utilization (how much of your available credit you're using) results in a higher credit score. So, to raise your credit score, reduce the balances on your accounts. Paying them off is one of the best things you can do for your credit.

4. Should I pay interest to improve my credit score?

No, you should not because paying interest does not improve your credit. Making timely payments on your credit cards and loan is what improves your credit score. So, make your payments on time.

5. Does paying interest on student loans build credit?

No, paying interest on student loans alone does not build credit. However, making your student loan payments does build credit because student loan payments are reported to the credit reporting bureaus and are factored into your credit score.