Re: Newbie Question..
11-13-2012 07:20 PM
I think there's some confusion in this thread, so let me try to clarify with a couple of points.
- You ALWAYS want to make a payment BEFORE the Payment Due date. This payment should be AT LEAST the Minimum Payment Due.
- If you don't pay the full Statement Balance before the Payment Due date, you will be charged interest. (in most cases)
- The balance on your account on the Statement Date is what gets reported to the credit reporting agencies EQ, TU and EX. (in most cases)
- Best Practice: To maximize your credit score, let all your cards report zero balance EXCEPT ONE. For the one card that reports a non-zero balance, let balance reflect 1% of the credit line for that card.
Let's use a real example... the first statement for my brand new Chase Amazon rewards card
Credit Line: $5000
Statement Date: 11/9/2012
New Balance: $378.08
Minimum Payment: $25.00
Payment Due Date: 12/6/2012
From this we can calculate 378/5000 = 7.56% utilization. This will get reported to the credit agencies.
I've made additional charges of $208.32 since the 11/9/2012 statement date. So my up-to-today balance is 378.08 + 208.32 = $586.04
(For the purpose of this example, let's assume that's all the additional charges I incur from now till the next statement date. In reality, you should keep track and recalculate just before you make a payment, taking into account any future charges you may make before the next statement date.)
What are my payment options?
- Pay nothing. I will get hit with a 30-day late derogatory that will stay on my CR for 7 years! Plus, I incur interest.
- Pay the $25 minimum due. I won't get hit with a late derogatory but I'll have to pay interest.
- Pay the $378.08 statement balance. I won't get a late derogatory and I won't pay interest. The balance on my next statement (estimated 12/9/2012) will be $208.32. Calculate 208/5000 = 4.16% utilization. Not bad, but we can do better!
- Pay such that only $50 balance appears on the next statement. Why $50? Because that's 1% of the 5000 credit limit. Calculate the payment 586.04 - 50 = $536.04.
- Pay everything I owe which is $586.04. This results in zero balance on the next statement. And thus 0% utilization.
In the eyes of a credit agency
- Get hit with a 30-day late on your report. Higher utilization reported.
- No late derogatory but higher utilization reported.
- Lower utilization reported but not optimal utilization.
- 1% utilization reported.
- 0% utilization reported.
BEST PRACTICE: Do #5 for all cards except one. For that one card, do #4.
Does that make sense?
04/13/2016 - EX 796 (American Express EX FICO® Score 8, range 300-850)
04/20/2016 - TU 793 (Discover TU FICO® Score 8, range 300-850)
03/22/2016 - EQ 775 (Citi EQ FICO® Bankcard Score 8, range 250-900)
GOAL - 800! - App free since 12/13/2015