Paying cc balance before it reports

[Anonymous]

Someone please help me, I'm new at this and I don't understand.  I hear a lot about paying your cc balance before/after the statement, paying it in full, etc.  How does this affect your FICO score.

[haulingthescoreup]

FICO scoring is based on historical data, and in my opinion, it hasn't adjusted to the way that Americans use credit cards these days. We have the opportunity to rack up lots of goodies if we use our cards a lot, so many of us do.

Here's my theory: the historical data that FICO looked at was from the days when people had two or three cards, but mainly wrote checks all the time. Those who were stable credit risks might use one of their cards every now and then, wait for the statement to come in the mail, and then mail their check in for the full amount. So FICO scoring is based on the balance that is reported by your credit card companies, generally on the date that the statement drops. If you use your cards a lot, and wait until that balance posts, the picture on your credit reports is that of someone who is using their cards a lot, maybe too much, and this hurts your scores.

If you have a copy of your most recent credit report, compare the balances showing to the most recent statements for each of your accounts (we'll say CC's to keep it simple.) Most companies report that balance that is on your statement, and they generally report it on the date that is on the statement (not the due date.) If the balances on your credit report are the same as the balances on your statements, you now how much your CCC's report, and what date they report. (It does sometimes take several days for the CRA's to get around to posting that figure.)

So what you do is, about 5 days before the statement is due to post ("drop") again, go on line and pay your account down or off. Then make sure that you don't use your card for the next few days. Generally, your account will be credited a lot faster if you pay on the CCC website rather than on your bank website. Keep checking the site to make sure nothing else pops up, and eventually you will see the statement post, with the nice low balance that you decided upon.

Give it several more days, just in case, and if you had a balance reporting, go ahead and pay it off before the due date. That way you never have to pay any interest. After you go through one entire billing cycle with each card --in other words, a month or so --your reported util should be much lower, and your scores will improve.

Luckily, your scores are better if not every card reports, because this will drive you nuts pretty quickly. There's a lot of fine tuning involved, but as a rule of thumb, fewer than half of your cards should show a balance at any one time, and the rest should be PIF'd (paid in full.) The cards that do report should ideally show a balance of less than 10% of their respective credit limits.

Keeping on top of all this can easily turn into a nearly full-time job, so you might want to pick 2 or 3 cards, probably those with your higher CL's, and let them report. The others can be used as much as you like, as long as you pay them off before the statement date.