topic Re: Ideal time to make the monthly payment? in Credit Cards

Ideal time to make the monthly payment?

Anonymous — Tue, 21 Aug 2012 03:26:47 GMT

I've been reading this forum with great interest and in the short time I've been on here I've gotten quite an education! My question is this: when is the ideal time of the month to pay one's cc bills? What is the relationship between when you pay and what is reported? Thanks for any insights you might have

Re: Ideal time to make the monthly payment?

jsucool76 — Tue, 21 Aug 2012 03:29:31 GMT

Lenders usually report right around your statement cut date, therefore if you have a balance of $750 on a $1500 limit (50% utilization) your best bet would be (if you can of course) pay down your balance before your statement cuts, and then your reported balance would be whatever you left on your card (if you left anything).

From what I've heard if you plan on applying for credit it is best to leave a 1%-9% balance on 1 card and let the rest report $0, and through this you will get a bit of a score increase.

Re: Ideal time to make the monthly payment?

Roarmeister — Tue, 21 Aug 2012 20:31:03 GMT

@jsucool76 wrote:
Lenders usually report right around your statement cut date, therefore if you have a balance of $750 on a $1500 limit (50% utilization) your best bet would be (if you can of course) pay down your balance before your statement cuts, and then your reported balance would be whatever you left on your card (if you left anything).

From what I've heard if you plan on applying for credit it is best to leave a 1%-9% balance on 1 card and let the rest report $0, and through this you will get a bit of a score increase.

+1 except that I disagree with the notion that 1-9% is somehow a magic number range. (This is an oft quoted number but I have yet to see ANY concrete evidence that these particular numbers mean anything. More likely it is just an accepted quotation and people just keeping using it as some sort of Gospel even though there is nothing to support "1-9%" as fact). If anything, there are no magic numbers or levels of balance that improve your score. It is most likely a gradual improvement in score as you lower your utilization as suggested by this chart ---> Credit Card Utilization and Score

Nevertheless, I promote a statement balance of under 10% for utilization but not a B&W number range for the best scores. Even a 0.1% utilization or $0.01 balance can be good. Keeping a 0% utilization number for long periods MAY hurt you if you aren't using your card at all but if your account is still showing that you are making payments on the card but just not showing a balance on the statement date I doubt if you see any negative scoring effects.

Paying your credit card more than once a month may help most people. This keeps the overall balance down in the first place. Secondly if you pay the balance a few days before the statement day then you will have a $0 balance. Your card will still report that you made payments and therefore you are using your credit. Essentially you are treating your credit card as a manual debit card but with the additional benefits of the credit card!

Re: Ideal time to make the monthly payment?

LS2982 — Tue, 21 Aug 2012 23:55:38 GMT

@Anonymous wrote:
I've been reading this forum with great interest and in the short time I've been on here I've gotten quite an education! My question is this: when is the ideal time of the month to pay one's cc bills? What is the relationship between when you pay and what is reported? Thanks for any insights you might have

You need to call your creditor and find out when your statement closing date is, and on or before that date is when you should pay monthly.

Re: Ideal time to make the monthly payment?

OptimalFICO — Wed, 22 Aug 2012 01:55:29 GMT

@Anonymous wrote:
when is the ideal time of the month to pay one's cc bills? What is the relationship between when you pay and what is reported? Thanks for any insights you might have

The ideal time of month to pay one's CC bills is a matter of personal circumstance. The most important factor in determining this is to be aware of and manage your revolving debt ratios because they can have a substantial impact on FICO scores. Call your revolving account creditors and ask what date they report to the CRAs (for all of mine, it is the statement cycle date).

It is considered best to maintain balances below 10% of the CL (below 30% if you must, but never let a balance report at 50% or above). According to Al Bingham, The Road to 850, "Any reported balance above 10% of the credit limit is considered a high debt ratio. As this ratio increases, more pressure is applied to FICO scores... Any revolving account balance less than 10% of its high credit limit is the point where FICO will not penalize FICO scores. Anything above this ratio will drop FICO scores." The impact can be slight to substantial, so be especially attentive to accounts with smaller CLs (e.g., with a $300 CL, work to keep your reported balance below $30, either by charging less or making a payment in advance of your card's reporting date).

Be aware that some lenders pull their account info a day or two before they send it to the CRAs. So a lender may pull the account info on the 24th of each month before it is sent to the CRAs on the 25th. It also usually takes several days for the CRAs to process the account info from lenders and put it in your credit file, so the new balance may not appear on your CR for a few days after the info is sent to the CRAs. Often there is a 60 day lag in balances showing on CRs. There is pressure from major lenders to speed up the credit cycle reporting because a lot can happen in 60 days. Some lenders now report more than once a month and there will likely be an increase in the numbers of lenders doing so in order to provide more up-to-date account info in one's CR.

To get FICO points for revolving accounts, there must be some minimum account and balance activity, without having an excessive number of accounts with a balance. An account with a balance reveals that one is actively using that account. However, it can raise one's level of credit risk if managing account balances on too many accounts. Personally, I use one card every month, never allowing the balance to exceed 9%, and I pay it off upon receiving the statement. I have three other cards that I use for a small purchase every 3-4 months to show periodic activity for FICO and so the creditors don't close the accounts for inactivity. (Contrary to what was reported above, you do need to allow at least a small balance to report in order to get credit from FICO. A zero reported balance, regardless of payments during the month, won't do it. I actually tried this with my fiance's two accounts because we have been shopping for a home. After several months of charging and making payments to zero his balances before the creditors reported to the CRAs, the top reason code adversely affecting his FICO scores is "No recent revolving balances #24, and No recent bankcard balances #29). Further note that you don't have to use every card every month in order to show periodic usage, though I'm not sure where the actual cut off is. For my credit cards that I don't use monthly, I make sure to use them once every four months and would never let it go longer than six months for fear they might be closed due to inactivity.

Despite the need to show periodic usage, also according to Al Bingham, it is a good idea to ensure that your credit report shows no more than two bank revolving accounts or national credit cards with a balance at a time. If you are applying for credit, it is best to have only one showing. Moreover, it is a wise strategy to limit the total number of accounts in your CR that show a balance to no more than five (this includes revolving accounts, a mortgage and car, student or other installment loans, etc). FICO scores will drop with each additional balance. Any number of accounts above 10 with a balance will cause an even greater drop to FICO scores.

Re: Ideal time to make the monthly payment?

tbolt2 — Wed, 22 Aug 2012 05:42:54 GMT

Generally, when you pay doesn't matter as long as it is by the due date.

The CC is going to report shortly after the statement generates. I've seen posts about mid cycle or early reporting before a statement cuts, but I have never had that happen to me.

When the CC reports to the bureaus can vary from CC to CC. This is what happened with two of my cards this month. I paid on or before the due date:

USAA

Due date 08/13

Statement date 08/18

Equifax update 08/21

Experian update probably on 08/22

TransUnion unknown - they've been agonizingly slow to update this month. They're running 4 days behind EQ and 6 days behind EX so far this month on my reports (I'm pulling daily through USAA's CMS).

Capital One

Due date 07/25

Statement date 07/27

Equifax update 08/01

Experian update 07/30

Trans Union 08/03

As you can see, there's a big difference in the lag time between the payment date and statement date between the two accounts, but both are close on the lag time between statement date and Bureau reporting.

Re: Ideal time to make the monthly payment?

andre181 — Wed, 22 Aug 2012 06:08:09 GMT

When is the ideal time to pay your credit card bill? Before the due date.

I'm just kidding of course, but the real answer to your question depends on your goals. If you are aiming for score maximization because you are anticipating applying for something, pay about 2-3 days before you statement cuts so as to minimize utilization and thus maximizing score.

If you aren't going to be applying for something, don't stress out too much about utilization. If you don't pay before you statement cuts, its no big deal. As another post above said, people here place 9% or less as some magic number. Its not magic and it really doesn't matter. Keep your utilization where you are comfortable. In my opinion, 30% is a much better guideline.

Based on your signature, you've got some great cards, nice limits, and a good score, so you are clearly doing something right. Just keep it up!

Re: Ideal time to make the monthly payment?

Anonymous — Wed, 22 Aug 2012 11:00:25 GMT

@andre181 wrote:
When is the ideal time to pay your credit card bill? Before the due date.

I'm just kidding of course, but the real answer to your question depends on your goals. If you are aiming for score maximization because you are anticipating applying for something, pay about 2-3 days before you statement cuts so as to minimize utilization and thus maximizing score.

If you aren't going to be applying for something, don't stress out too much about utilization. If you don't pay before you statement cuts, its no big deal. As another post above said, people here place 9% or less as some magic number. Its not magic and it really doesn't matter. Keep your utilization where you are comfortable. In my opinion, 30% is a much better guideline.

Based on your signature, you've got some great cards, nice limits, and a good score, so you are clearly doing something right. Just keep it up!

Thank you so much!

Re: Ideal time to make the monthly payment?

Anonymous — Wed, 22 Aug 2012 12:15:18 GMT

@jsucool76 wrote:
Lenders usually report right around your statement cut date, therefore if you have a balance of $750 on a $1500 limit (50% utilization) your best bet would be (if you can of course) pay down your balance before your statement cuts, and then your reported balance would be whatever you left on your card (if you left anything).

This is the trick I didn't know about until I learned how they score... when making payments, it's the current card balance that matters, not the balance at the date of your last statement. I had a single Cap1 card with a small $2.5k CL. I always PIF every month, always on time. Yet that card was significantly hurting my score, because I used it a lot. If I charged $1000 in a month, a statement would come out showing a balance of $1000. I would pay $1000, but by the time the next statement cut-off, there might be $1000 of new charges on the card. So even though I was paying the statement balance in full every month, I was always showing a balance of around $1000, give or take. But all it took was making a "double payment" one month (the current statement balance, plus any current charges to date) to knock that balance down and get a huge jump in my score. Then once my score went up, I got a few more cards so my typical monthly spending wouldn't be such a large percentage of my total CL.

Re: Ideal time to make the monthly payment?

OptimalFICO — Thu, 23 Aug 2012 01:45:04 GMT

@Anonymous wrote:
@jsucool76 wrote:
Lenders usually report right around your statement cut date, therefore if you have a balance of $750 on a $1500 limit (50% utilization) your best bet would be (if you can of course) pay down your balance before your statement cuts, and then your reported balance would be whatever you left on your card (if you left anything).
This is the trick I didn't know about until I learned how they score... when making payments, it's the current card balance that matters, not the balance at the date of your last statement. I had a single Cap1 card with a small $2.5k CL. I always PIF every month, always on time. Yet that card was significantly hurting my score, because I used it a lot. If I charged $1000 in a month, a statement would come out showing a balance of $1000. I would pay $1000, but by the time the next statement cut-off, there might be $1000 of new charges on the card. So even though I was paying the statement balance in full every month, I was always showing a balance of around $1000, give or take. But all it took was making a "double payment" one month (the current statement balance, plus any current charges to date) to knock that balance down and get a huge jump in my score. Then once my score went up, I got a few more cards so my typical monthly spending wouldn't be such a large percentage of my total CL.

This is a good example of the importance of managing your balance to CL ratios. It can have a huge impact on scores. When your CL is high enough, you won't have to be as concerned about this as much.

Note, the recommendation of many to keep balances below 10% of CLs isn't an imaginary nor magic number... It is based upon FICO's scoring algorithim. According to FICO scoring expert and insider, Al Bingham, authori of The Road to 850, "Any reported balance above 10% of the credit limit is considered a high debt ratio to FICO. As this ratio increases, more pressure is applied to FICO scores... Any revolving account balance less than 10% of its high credit limit is the point where FICO will not penalize FICO scores. Anything above this ratio will drop FICO scores." The impact can be slight to substantial, so be especially attentive to accounts with smaller CLs (e.g., with a $300 CL, work to keep your reported balance below $30, either by charging less or making a payment in advance of your card's reporting date).

Re: Ideal time to make the monthly payment?

andre181 — Thu, 23 Aug 2012 01:55:53 GMT

My scores don't budge until 35% so I just speak from my personal experiences.

Like I said before though, don't stress about utilization unless you are applying for something. If you make a really large purchase and get your utilization up to 35-40% don't worry. The score effect, if any, will be reversed the minute you make a payment and your card(s) update next.

Its not that serious.

Re: Ideal time to make the monthly payment?

jamesdwi — Thu, 23 Aug 2012 02:00:18 GMT

For people with new credit the safest/wisest method is to pay more than your expected minimum payment as soon as each new month statement begins. You may have to push the payment to the company. This way there is no way possible to be late on a payment because you forgot.

Re: Ideal time to make the monthly payment?

Roarmeister — Thu, 23 Aug 2012 02:43:35 GMT

@OptimalFICO wrote:

Note, the recommendation of many to keep balances below 10% of CLs isn't an imaginary nor magic number... It is based upon FICO's scoring algorithim. According to FICO scoring expert and insider, Al Bingham, authori of The Road to 850, "Any reported balance above 10% of the credit limit is considered a high debt ratio to FICO. As this ratio increases, more pressure is applied to FICO scores... Any revolving account balance less than 10% of its high credit limit is the point where FICO will not penalize FICO scores. Anything above this ratio will drop FICO scores." The impact can be slight to substantial, so be especially attentive to accounts with smaller CLs (e.g., with a $300 CL, work to keep your reported balance below $30, either by charging less or making a payment in advance of your card's reporting date).

Your statement actually supports my assertion rather than counters it. "As this ratio increases" = is the same thing that I am saying that your score is variable with the utilization. 9% is incrementally better than 10% which is incrementally better than 11%. 9% is not MAGIC in of it self. You are not going to see anything but a incremental difference in score between 9% and 10%, etc.

Do you honestly believe the author is implying that a 2% utilization is no better than a 9% and that there is a SPECIFIC cutoff at 10%? Meaning no penalty below 10% but and increasing penalty above 10%? To support that kind of statement I want to see hard validation! As far as I know, the algorithms used are not published so proving that statement is only going to be done by real world examples.

I say phooey - there is no magic cut off but merely an incremental gain. In general a lower utilization is simply better than higher based on an incremental differences. If someone wants to physically "chase" these numbers to prove the minutia of a point, they are welcome to it. I would read that post with interest.

Re: Ideal time to make the monthly payment?

OptimalFICO — Thu, 23 Aug 2012 03:07:24 GMT

@Roarmeister wrote:
@OptimalFICO wrote:
Note, the recommendation of many to keep balances below 10% of CLs isn't an imaginary nor magic number... It is based upon FICO's scoring algorithim. According to FICO scoring expert and insider, Al Bingham, authori of The Road to 850, "Any reported balance above 10% of the credit limit is considered a high debt ratio to FICO. As this ratio increases, more pressure is applied to FICO scores... Any revolving account balance less than 10% of its high credit limit is the point where FICO will not penalize FICO scores. Anything above this ratio will drop FICO scores." The impact can be slight to substantial, so be especially attentive to accounts with smaller CLs (e.g., with a $300 CL, work to keep your reported balance below $30, either by charging less or making a payment in advance of your card's reporting date).
Your statement actually supports my assertion rather than counters it. "As this ratio increases" = is the same thing that I am saying that your score is variable with the utilization. 9% is incrementally better than 10% which is incrementally better than 11%. 9% is not MAGIC in of it self. You are not going to see anything but a incremental difference in score between 9% and 10%, etc.

I misunderstood, I thought you were asserting that there is no difference between say 9% and 35%. As with most everything with FICO, it's all incremental and also depends on the rest of one's portfolio and usage. So what doesn't impact one person's score significantly may have a more dramatic impact on another's.

Re: Ideal time to make the monthly payment?

Roarmeister — Thu, 23 Aug 2012 16:55:58 GMT

@OptimalFICO wrote:
I misunderstood, I thought you were asserting that there is no difference between say 9% and 35%. As with most everything with FICO, it's all incremental and also depends on the rest of one's portfolio and usage. So what doesn't impact one person's score significantly may have a more dramatic impact on another's.

Agreed. Another poster is also correct in saying that unless you are applying for additional credit and doing a credit pull that there is little point in monitoring the ups and downs of your credit card in fine detail. Since their is no credit score history in the credit score, a person could go months or even years without worrying about whether their score varies or is at a peak. But to establish good spending habits and discipline I would advise a person to aim for 10% or less utilization.

Re: Ideal time to make the monthly payment?

Anonymous — Thu, 23 Aug 2012 17:41:44 GMT

@Roarmeister wrote:
Do you honestly believe the author is implying that a 2% utilization is no better than a 9% and that there is a SPECIFIC cutoff at 10%? Meaning no penalty below 10% but and increasing penalty above 10%?

I know you weren't replying to me, but *I* honestly believe that is what the author is implying, assuming those are direct quotes from the book. Why specifically mention 10% if it's a continual scale all the way down to zero? More specifically, he says: "Any revolving account balance less than 10% of its high credit limit is the point where FICO will not penalize FICO scores." That seems pretty clear to me. I'm not saying it's correct, I have no idea. But that definitely seems to be exactly what the author is implying. And honestly, it makes perfect sense to me. Why would you drop someone's score down for just using their credit card? How many people with good credit pay for everything with cash or check these days? If you use your credit, you are going to have a balance, unless you specifically log in or call just before the cut-off date to find out how many new charges have hit, then make an instant payment to cover them. It makes sense to me to have a cut-off where below that limit it's just considered normal use of credit as a convenience, as opposed to an indication that someone is in NEED of their credit line.

Re: Ideal time to make the monthly payment?

LionLaw — Thu, 23 Aug 2012 18:10:44 GMT

This is a good question, and the answers on here have been informative as usual. I just thought I'd add my 2 cents.

Before coming on this forum, I always paid my cards in full every month around the 1st of the month. My statements always cut around mid month, and I would pay the statement balance on the 1st. That has always worked fine. However, when I decided I wanted to get myself an Amex last month, I knew I would need to get every last point I could on my FICO score. So, in addition to my regularly-scheduled payment on the 1st, I made an additional payment on each card right before the statement cut, so on my reports for last month, I showed a 1% balance on one card and 0% on the rest. This strategy bumped my FICO score almost 30 points, and I was approved for an Amex.

So, in short, most months it doesn't really matter when you pay, as long as you pay on time. If you need a FICO boost in any given month, make sure you're paid in full before your statement cuts.

Re: Ideal time to make the monthly payment?

Anonymous — Thu, 23 Aug 2012 18:22:25 GMT

@LionLaw wrote:
in addition to my regularly-scheduled payment on the 1st, I made an additional payment on each card right before the statement cut, so on my reports for last month, I showed a 1% balance on one card and 0% on the rest. This strategy bumped my FICO score almost 30 points

But what was your typical utilization before that? I did the same as you, but my low CL combined with high monthly spending had me around 75% utilization despite PIF every month. Like you, I paid extra the month I wanted to app for new cards, but I only did enough to get me down to 8%. That still got my FICO from 753 to 807. But I have no idea if it would have been any different if I had paid it down to 1%.

Re: Ideal time to make the monthly payment?

OptimalFICO — Thu, 23 Aug 2012 22:40:51 GMT

I agree, great discussion. Another point is that sometimes life happens and one might need to appy for credit without sufficient time to plan to manipulate FICO scores first, especially considering the reporting lag. So for scores that might be less than stellar or borderline, I feel like it pays to give enough attention and management to it that you know you can get credit when you need it. Again, it all depends on individual circumstances. My scores, spending habits and CLs are such that I don't need to worry about it. My fiance's on the other hand are such that we need to actively manage his usage.

Re: Ideal time to make the monthly payment?

Anonymous — Fri, 24 Aug 2012 01:33:31 GMT

Honestly, as long as you always pay on time, it really doesn't matter that much. I've never worried about paying before the statement cutting or manipulating utilization and I've never had a credit card application be denied. I know my utilization must have been high on some of my early applications, like Capitol One and on my Amex Gold card application, and I was still instantly approved. Since then, most of my spending has been on my Amex, which isn't factored into utilization. Still, I had a balance on that and my 2 other cards when I applied for the Sapphire Preferred 2 weeks ago and it was no problem. I'm not applying for any new credit cards any time soon, but I don't think I'll ever bother worrying about accounts with balances or utilization for a credit card application, for a car loan/mortgage sure, but not a credit card. If you are paying in full, your utilization probably won't really be that high anyway. If it is, you need to just work on raising limits and/or get a charge card.