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Regular Contributor
Posts: 206
Registered: ‎12-20-2012
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How does paying before statement build credit?

Just curious, I know the right way to do it per forum consensus is pay every card off in full each month before the statement cuts. How then does it report that I am using/building "credit" when really I am just using my credit card as a debit card?


Starting Score: EXP 615 | TU 610 | EQ 635
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New Contributor
Posts: 83
Registered: ‎02-28-2013
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Re: How does paying before statement build credit?

I'm a newbie to this credit building, but it's my (limited) understanding that your report should still show what you put on your card each month, regardless of whether you pay it off in full.  This is only my understanding.  So, that being said, if it's accurate, my goal is to only charge around 10% on a card and still pay it off in full, and to never go over 30%.  I'm open to suggestions on this as well! 

I think what they are looking for is that you are making a regular monthly payment and not utilizing more than 30% of your credit.  The less the better. 



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Regular Contributor
Posts: 206
Registered: ‎12-20-2012
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Re: How does paying before statement build credit?


AQ wrote:

I'm a newbie to this credit building, but it's my (limited) understanding that your report should still show what you put on your card each month, regardless of whether you pay it off in full.  This is only my understanding.  So, that being said, if it's accurate, my goal is to only charge around 10% on a card and still pay it off in full, and to never go over 30%.  I'm open to suggestions on this as well! 

I think what they are looking for is that you are making a regular monthly payment and not utilizing more than 30% of your credit.  The less the better. 


But, and maybe this is my real question- don't they appreciate you running tons of cash through your card? In other words, would it behoove me to run it up to 30% and pay it off EACH WEEK- for a greater total spend per month? I just don't see what card companies would get out of doing business with someone who is barely using the card (at least, with my measley 2 and 3k limits, I would never charge above 600 or 1k a month. This must be almost a waste of their time..)


Starting Score: EXP 615 | TU 610 | EQ 635
Current Score: EXP 719 (lender pull 10/15) | TU 707 | EQ 700 (lender pull 10/25)
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New Contributor
Posts: 105
Registered: ‎02-20-2013
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Re: How does paying before statement build credit?

It really doesn't build that much credit...It will boost your score temporarily for that month by reducing you utilization but it may also not reflect what you spend every month which can hurt your score longterm I think.

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Established Contributor
Posts: 747
Registered: ‎10-15-2012
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Re: How does paying before statement build credit?

The key is to have one card report a small balance (<10%) and have all the rest report zero. 


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Valued Contributor
Posts: 1,292
Registered: ‎08-19-2012
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Re: How does paying before statement build credit?


gpfirestone wrote:

It really doesn't build that much credit...It will boost your score temporarily for that month by reducing you utilization but it may also not reflect what you spend every month which can hurt your score longterm I think.


These is no "history" of what you spend every month, so there is no way for that to affect your score.  Spending has no bearing on Credit Score, it's all about paying on time over a long period of time and keeping your revolving balances low

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Valued Contributor
Posts: 1,622
Registered: ‎01-23-2013
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Re: How does paying before statement build credit?


AQ wrote:

I'm a newbie to this credit building, but it's my (limited) understanding that your report should still show what you put on your card each month, regardless of whether you pay it off in full.  This is only my understanding.  So, that being said, if it's accurate, my goal is to only charge around 10% on a card and still pay it off in full, and to never go over 30%.  I'm open to suggestions on this as well! 

I think what they are looking for is that you are making a regular monthly payment and not utilizing more than 30% of your credit.  The less the better. 


AQ, this isn't quite correct. Generally, your reports show what is on your cards on the day the statement cuts. You could put a million bucks through your cards but if you pay it off before statement day, the reports don't see it.

 

Also, it's the credit reporting agencies who like to see low utilization (not zero, but at least a little something showing on one or two cards). The card companies themselves may like it if you run quite a bit through their cards and/or run a nice, profitable monthly balance. There are many mysteries and conflicts of interest in credit scoring, but low (non-zero) utilization shows that you're using your credit but not abusing your credit.

 

New Contributor
Posts: 83
Registered: ‎02-28-2013
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Re: How does paying before statement build credit?

Oh, I think I misunderstood. I thought the person was implying paying it off before the grace period ended, as in before interest was attached to it.  That is what I am trying to do--charged $20/month on my credit card for an autodraft for a regular payment, then pay it off as soon as the statement ends or "cuts" as you put it more eloquently. 

So you would suggest I am doing right--keeping my credit on a card at a low rate and paying it off once the statement cuts?  I have a $500 secured card and have set up an autopay that's $20/month.  I kinda figured keeping a regular amount charged would be more beneificial than varying amounts (or at least safer), and keeping that at 10% or less.  I guess that's less than 5%.

Thanks for your help!



Starting Score: TU 641 2/28/13 EQ 640 3/1/13
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Regular Contributor
Posts: 206
Registered: ‎12-20-2012
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Re: How does paying before statement build credit?


AQ wrote:

Oh, I think I misunderstood. I thought the person was implying paying it off before the grace period ended, as in before interest was attached to it.  That is what I am trying to do--charged $20/month on my credit card for an autodraft for a regular payment, then pay it off as soon as the statement ends or "cuts" as you put it more eloquently. 

So you would suggest I am doing right--keeping my credit on a card at a low rate and paying it off once the statement cuts?  I have a $500 secured card and have set up an autopay that's $20/month.  I kinda figured keeping a regular amount charged would be more beneificial than varying amounts (or at least safer), and keeping that at 10% or less.  I guess that's less than 5%.

Thanks for your help!


YES- you understood correctly- this was my question.

 

So- the better answer then is to leave the balance on when the statement cuts and pay it before the due date?


Starting Score: EXP 615 | TU 610 | EQ 635
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Valued Contributor
Posts: 1,597
Registered: ‎09-15-2012
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Re: How does paying before statement build credit?

To the OP, it all depends on what you mean by "building credit".

So, every month you have a card open an pay on time, you add a Month's worth of positive history to your account. Regardless of $0 charged or a million dollars - you get a check mark either way. It is a well established fact that positive payments are not as meaningful for a credit report as a negative payment - but just the same you build credit by paying on time regardless of your amount charged. No one else knows if you used the card or not, they just see that you always made payments on time.

If you are referring to building a relationship with a particular creditor, that's a different story. But - a lender is generally okay with you having their card no matter how much you spend. There's a ton of fixed costs in running a credit card portfolio, so there certainly needs to be a large volume of people holding cards for the lender to make a profit, but each individual is rather profitable once that volume is hit. Remember, interest is only part of the revenue from cards. Swipe fees, cash advance fees, over the limit fees, etc. are also a very healthy revenue stream.

Also - lenders tend to have an "excellence" complex of sorts, and each thinks that once a cardholder has their card it will magically open their world to a new level of spending. And that's rather true, since promotional offers are rather successful in eliciting spending from a consumer. At least they always have been for me and my family :smileyhappy:

Does this make sense? In summary, responsible credit behavior is really NOT using credit, but rather obtaining it for future use. Notice, you cant get credit when you need it, only when you don't need it. Spending more than you earn just to make the creditor profit is not responsible usage.

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