How should I use credit?

[spengbab]

Hey guys, I'm a little confused on how I should be using credit to raise my score.

Would it be faster to raise it by charging something to it and paying it off over time? Or would it be better just to charge simple everyday items and PIF every month? Does FICO not care what route I take as long as I show a history of payoff on time?

I was toying with the FICO score calculator. It seems that the best course of action for me is paying things off over time. I currently carry a balance because I had to get my car fixed (0% APR for 6 mos), once my new CCs report my util will be around 13%. I was thinking maybe I should charge something and pay it off over time. Especially since one of my new cards has a 0% APR for 15 months. I'm always on top of paying things off (usually I'll pay 10-15 days before the payment due date)

Good idea or bad idea? 

[FrugalRican]

First, you need to understand the difference between your statement date and your due date.

They are two different things.

Your statement date is the time that your statement cuts off and your credit card reports to the bureaus.

Your due date is basically... payment time.

You can carry a balance by statement date (preferrably less htan 9% on one card) and still PIF before the due date, so that you don't get charged interest.

The problem with carrying balances past your due date, even during that grace period of 0% is that you might develop the habit of doing so even after the grace period. People are notoriously adept to keeping habits, whether good or bad, so why not develop a good habit now?

Keep something on one card so it can report on your statement date, but make sure your balances are 0 before your due date and everything will be A-OK in credit land.

[llecs]

OP, my vote is to PIF monthly each CC. FICO doesn't track or remember what your util was 1 week ago to 10 years ago. It also doesn't track or score your exact payment history. It just cares if there's a late reporting or not. So, I'd PIF monthly and not even use the card monthly, though I'd use it at least quarterly to avoid it being closed by the creditor. And when you go to app for something like a new CC, car, home, etc., leave all of your CCs at $0 except for one, and get the one to report a balance of under 9% of the CL.

[Revelate]

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@llecs wrote:

OP, my vote is to PIF monthly each CC. FICO doesn't track or remember what your util was 1 week ago to 10 years ago. It also doesn't track or score your exact payment history. It just cares if there's a late reporting or not. So, I'd PIF monthly and not even use the card monthly, though I'd use it at least quarterly to avoid it being closed by the creditor. And when you go to app for something like a new CC, car, home, etc., leave all of your CCs at $0 except for one, and get the one to report a balance of under 9% of the CL.

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The bureaus collect it, and lenders report it, and Experian even shows it on the credit report I can view as an individual consumer.

Whether any of the FICO algorithms make use of it or not is unknown, but they could, so I wouldn't unilaterally rule it out.  I suspect it will be used by any lender's underwriting department though.  That said, I doubt you can go very wrong from a FICO perspective besides just PIFing as illecs suggests, though I doubt it's quite that simple this works for a large number of high scoring individuals.

 Edit: the payments tracking on Experian seems to be thrown off by multiple payments in a month, I'll have to go compare that vs. my bank statements to see which date was actually used, either the first or second payment in any given statement period.

[spengbab]

Actually frugal, I'm not crazy enough to charge big ticket items on my cards that have an APR of 22.99% APR. I'm using my cards as a substitute to my debit card just because its safer and I can get some activity in my cards. 

[Yodafer]

Because I read about people using their cards and then paying it off before the statement date I called Capital One about this and asked what date they report to the credit bureaus, she said it varies every month.  So I dont use my card other than keeping a very small (under $25) balance on it.  The reason is if my credit limit is $300, and I buy groceries today ($150) with the intent to pay it off next Friday, but the credit card company reports to the credit bureaus tomorrow its going to show me at a 50% util. rate.

[llecs]

It'll vary, but only slightly. Almost all CCs, CapOne included, will report the balance you had on the statement date, and will report that balance within a day to a few days after the statement cuts. Generally, your statement date for CapOne will be on the same day each month. In fact, looking at my statement dates, they are always the same date each month. Your due date will be a few days before that. The key is to time your CC usage and payments around the statement date. Always pay something by the due date, but be sure to make another payment if necessary a couple days before that statement date and avoid using that CC until the statement cuts.