<prompt> Human: This is purely out of curiosity, but its a question that Im asked a lot by friends, and I noticed a popular thread about it recently on this sub. Im wondering if anyone knows where these myths started around paying off debt periodically, even when you could pay it all off immediately, to build up your credit. The general idea that I hear a lot is that always carrying some debt is good for you--as long as you dont miss a monthly payment. Does this in fact build up your credit? If so, how is having debt but paying it on time better than not having any debt? Wouldnt a person with no debt be a better choice to receive credit vs. someone who is already burdened? This has always confused me, and I wonder if its a myth that was floated out there by lending companies to try to convince people to keep paying interest...Trust us, its good for you! EDIT: Thanks everyone for the replies. Ive learned a few important lessons that I thought Id add here, so that anyone looking for the answer can start with a quick summary.1 The credit score is based on your history of paying debts on time, not your capacity to take on new debt. So if you never carry any debt of any kind you pay for everything in cash then your history of paying debt is zilch. Youre an unknown, which is a risk for a lender. 2 HOWEVER, you dont need to pay interest to improve your credit score. Paying off your monthly credit card bills in full does help build your credit. So it seems that the disconnect here is that some people heard your history of paying debts on time and assumed it meant payments carrying interest. A very dangerous and costly misinterpretation. It doesnt help that the rules of credit scoring are complicated and unclear to the average borrower, and that lenders would be more than happy to see you make this misinterpretation to the point that they might even encourage it by being intentionally unclear...  <response>: If so, how is having debt but paying it on time better than not having any debt? Having debt paying it off on time repeatedly shows that you are trustworthy with other peoples money.Think of it like a job application. If you never had a job before, you have no references, no one to say you would be a good employee. Thats what no previous debt is like. 