A FICO expert warns that this widespread credit score myth could negatively impact your score.

While the average American generally handles their credit well, it's crucial to dispel a widespread belief: Believing that maintaining a balance on your credit card each month positively impacts your credit score is a myth.

"According to Tommy Lee, FICO's senior director of analytics and scores, "Carrying balances from month to month and incurring interest fees does not positively impact your credit score.""

If you carry a balance on purpose, you risk harming your credit score by increasing your credit utilization ratio, which is the percentage of your available credit you're using.

Experts recommend keeping credit balances low to signal responsible credit management to lenders.

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Carrying a credit card balance for multiple months could result in costly interest charges, ultimately leading to financial strain.

If you have a $2,000 balance on a credit card with a 25% annual percentage rate, which is average, according to LendingTree data, and you make monthly payments of about $107 for two years, you will pay approximately $562 in interest charges. However, the faster you pay off the balance, the less interest you will pay in total.

If you pay off your credit card balance in full before the end of your billing cycle, you won't incur any interest charges.

In 2024, life is already expensive. Therefore, it's crucial not to pay more for something than necessary. Matt Schulz, the chief credit analyst at LendingTree, advised CNBC Make It in May.

Ensure that you pay the minimum amount you owe on time, even if your budget is tight and you can't fully pay off your balance each month.

How to improve your credit score

Your credit score isn't fixed and can change over time, according to Lee.

There are several factors that are used to calculate your credit score:

• Your credit card payment history (35%) reflects how frequently you've made timely payments.
• Your total debt across all accounts and how it relates to your total available credit.
• The length of your credit history (15%): How long you've been utilizing credit.
• The various credit types you manage, including credit cards, mortgages, and student loans.
• Have you recently applied for or opened new lines of credit?

FICO states that the significance of each factor affecting credit score may vary based on individual credit usage, making it challenging to determine which specific category is impacting the credit score at any given time.

Paying bills on time is crucial for improving your credit score, as it accounts for the largest percentage of the calculation, according to Lee.

Building excellent credit requires time and consistency, according to Schulz.

"Consistently performing three actions - paying bills on time, keeping balances low, and limiting credit applications - will result in a healthy credit score over time."

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