Reply
Member
smarterspender
Posts: 18
Registered: ‎08-26-2011
0

First Credit Card in Years - A Few Questions on How to Best Leverage It

I have a new credit card as a way to help me rebuild my credit. It has a modest $300 limit. I was advised to charge up to just 10% of my credit limit each month ($30) and pay it off as soon as I receive my statement.

 

First of all, is about 10% a good amount? Should it be higher or lower?

 

If I pay my balance off before my statement arrives/before the billing cycle ends, does that activity not get reported to the credit bureaus?

Frequent Contributor
LTomBerry
Posts: 398
Registered: ‎08-02-2011
0

Re: First Credit Card in Years - A Few Questions on How to Best Leverage It

10% is a good rule. You are correct if you pay it down to 0 before the cycle ends it appears as no activity on your report, which is not always a completely good thing. You could use it for more, then pay it down to below 10% before it closes. Then when you get your statement you pay in full before the due date. That way you show activity but maintain good utilization.


Starting Score: 690
Current Score: EQ 780 EX 814 TU 783
Goal Score: 800

Take the FICO Fitness Challenge
Senior Contributor
Walt_K
Posts: 3,065
Registered: ‎11-02-2009
0

Re: First Credit Card in Years - A Few Questions on How to Best Leverage It

We really need a sticky thread on this topic.

 

The general advice is that for best scoring purposes you want one account to report 9% or less of that card's credit limit (not total CL across all cards).  All other accounts should report $0.  Remember, utilization is rounded up, so for a $300 CL, you want a balance of $27 or less. 

 

You are controlling what reports to the CRAs.  You can use your card for more than $27 in the month, but you don't want more than $27 to report.  The number that is reported to the CRAs for most credit cards is the balance that is listed on your statement.  There are some cards that report an end of month balance.  You can search around the threads to figure out how yours reports, but it is likely statement balance.  You can also figure this out if you have a monitoring service by just noting whether the amount listed on your report matches your last month's statement balance.

 

So, with that in mind, if you charge $100 this month, you would want to make a payment a couple days before your statement generates to bring the balance below $27 so that when your bill is generated the balance reads $27 or less.  After the statement generates, you can immediately pay the remaining balance so that your balance is paid in full and you don't get charged any interest.  You don't have to do it immediately, you just need to do it before your due date.  But a common misconception with the 9% or less rule is that people think they need to carry a blance.  You are always better off if you pay in full (PIF).  This whole thing is for reporting purposes.

 

Another couple points to note.  9% or less on one account is what works best for most people.  Where your exact sweet spot is will depend on your specific credit report.  Additionally, you don't have to worry about this if you mess it up one month.  If you pay it back down to less than 9%, your score will go right back to where it was the previous month all else being equal (which it can never be exactly equal because everything has just aged another month). 

 

Hope that helps.

 


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


Take the FICO Fitness Challenge
Regular Contributor
castlefox
Posts: 227
Registered: ‎12-09-2010
0

Re: First Credit Card in Years - A Few Questions on How to Best Leverage It

Nice write up Walk_K

MyFICO score- Equifax - 12.03.11 - 780 Experian 12.03.11 - 763
(FAKO Scores) EXP PLUS Score Dec 2011. 748
Advanced Risk Score 2.0 (NextGen) 793 Dec 2010
Vantage Score (2011) MAR = 771 Jun = 771 Sept= 788 Dec= 773
2012 MAR = 782 JUN=783 Dec = 789
2013 Mar-796 Jun-799 Dec- 797
Member
smarterspender
Posts: 18
Registered: ‎08-26-2011
0

Re: First Credit Card in Years - A Few Questions on How to Best Leverage It

I agree. Thank you very much!
Established Contributor
SevenNEW
Posts: 524
Registered: ‎08-24-2011
0

Re: First Credit Card in Years - A Few Questions on How to Best Leverage It


castlefox wrote:

Nice write up Walk_K


I agree. This is one of the things I read here some time ago that made a huge difference in my CC management...

SevenNEW, Garden Nerd - In the Garden until 2015!
4.2K 10K 24.6K
Valued Contributor
Mustanglvr2006
Posts: 1,971
Registered: ‎02-06-2011
0

Re: First Credit Card in Years - A Few Questions on How to Best Leverage It

VERY well written Walt_K

 

I actually think Walt_K's reply should be made a sticky, I think his reply covers just about everything regarding the OP's question.

 

Thanks Walt_K for taking the time to write that up! That info will help a lot of people who come across it.


Starting Score: 583
Current Score: 3-03-12-EQ-802 TU-806 EX-798 (EQ Beacon 9: 804 Lender Pull 3-08-12) All FICO's
Goal Score: 800+ across all three

Take the FICO Fitness Challenge



myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.

>> About myFICO
FICO Score - The Score that matters
Click to Verify - This site chose VeriSign SSL for secure e-commerce and confidential communications.
Fair Isaac Corporation is a BBB Accredited Financial Service in San Rafael, CA
FOLLOW US Social Media Facebook Twitter Pinterest Google+
}