topic Re: Avoiding Zero Penalty in Understanding FICO® Scoring

Avoiding Zero Penalty

HomeBuyerSpring2021 — Sat, 29 Oct 2022 15:48:30 GMT

Can I avoid the zero penalty *and* avoiding paying interest?

For example, if I know when my cards report, can I pay them all to $0 by the due date & then charge something on 1-2 credit cards (Citi, AMEX, CapOne, Discover *not* Chase or store cards) between when I pay them off to $0 & the closing date when they report?

As long as I do it timely so whatever I charge on them has time to get out of pending and hit my balance, will this enable me to pay zero interest yet also not get hit with the zero penalty on my FICO score?

Re: Avoiding Zero Penalty

GZG — Sat, 29 Oct 2022 17:59:48 GMT

@HomeBuyerSpring2021 wrote:
Can I avoid the zero penalty *and* avoiding paying interest?

For example, if I know when my cards report, can I pay them all to $0 by the due date & then charge something on 1-2 credit cards (Citi, AMEX, CapOne, Discover *not* Chase or store cards) between when I pay them off to $0 & the closing date when they report?

As long as I do it timely so whatever I charge on them has time to get out of pending and hit my balance, will this enable me to pay zero interest yet also not get hit with the zero penalty on my FICO score?

You never need to pay interest in order to do AZEO.

Step 1: Find out when your cards report. Typically, this is when the statement prints, but this may be different for different issuers, as you've mentioned.

Step 2: Prior to the card reporting, ensure all cards, except one, are at a $0 balance by paying them off in full.

One card should be paid off so that is has a small balance <9%, preferably <5% on the date that the card reports.

Step 3: Let the cards report. If you did it correctly, all should report $0 and one should report a small balance.

Step 4: Pay off that card that was reporting <9% in full, ensuring you never carry a balance on the card you were allowing to report.

Imagine I have three cards, they all report on the first of the month.

Card 1: Pay to $0 on the 27th of the month, no further charges.

Card 2: Pay to $0 on the 27th of the month, no further charges.

Card 3: Pay to $10 on the 27th of the month, no further charges until the statement is issued or the card reports.

Then once, the 1st comes around and they all report balances:

January's balances:

Card 1: $0

Card 2: $0

Card 3: $10 (Now you can pay this off in full in order to avoid interest)

After that, you are free to use your cards until the following month where you will need to repeat the process to ensure AZEO.

I fudge the dates here, but it looks something like this.

Re: Avoiding Zero Penalty

SouthJamaica — Sat, 29 Oct 2022 18:02:18 GMT

@HomeBuyerSpring2021 wrote:
Can I avoid the zero penalty *and* avoiding paying interest?

For example, if I know when my cards report, can I pay them all to $0 by the due date & then charge something on 1-2 credit cards (Citi, AMEX, CapOne, Discover *not* Chase or store cards) between when I pay them off to $0 & the closing date when they report?

As long as I do it timely so whatever I charge on them has time to get out of pending and hit my balance, will this enable me to pay zero interest yet also not get hit with the zero penalty on my FICO score?

You never have to pay interest, period, as long as you pay by the due date, which is long after the reporting date... typically 20-25 days after.

If you're doing AZEO you are by definition paying WAY in advance of the due date, since you're paying most accounts even before the reporting date.

(Of course I am assuming your reporting date is your statement date, which is true with most, but not all, cards)

Re: Avoiding Zero Penalty

Jnbmom — Sat, 29 Oct 2022 18:34:07 GMT

That is WAY too much overthinking. Follow the advice as others stated .

Re: Avoiding Zero Penalty

HomeBuyerSpring2021 — Sat, 29 Oct 2022 21:06:14 GMT

Your response was so detailed, I feel daft (been watching Downton Abbey having to ask for clarity. But I just want to make sure I understand. I know all of my credit card due dates & closing dates very well because of having to fix my credit after 2008 recession. But in my mind if I have a card (for simplicity sake) that is due on November 1 & reports on November 5, I thought that I'd be charged interest if I ...

1. Got my statement on October 5th for $100 (and paid it in full sometime in October)

2. Made purchases of $50, $100, $150 with the card from October 6-October 31 (and did NOT pay $300 more before November 1st)

I guess I'm not clear as to WHEN I have to pay my bill in order to not be charged interest. I've lived at 2 extremes ... ALWAYS paying my balances in full (and being totally ignorant of credit) to NEVER paying more than the minimum for several years (during recession, divorce & family health caregiving).

So I think this conversation has me realizing that I truly have no idea when credit cards apply interest. I know that when I had balances last month & paid all of my credit cards to $0 during October, I still got hit with interest on my most recent statements. So I'm confused as to when that interest was applied.

I thought in order to achieve AZEO, I'd have to pay all my credit cards to $0 before their due dates & then use ONE card to buy something between the due date & the closing date (in my example above, I thought I'd have to buy something between Nov 1-Nov 5 ... preferably on Nov 1-3 to give it a chance to go from pending to balance before reporting). Sounds like I have a totally wrong understanding. Can you help clear it up?

Re: Avoiding Zero Penalty

FireMedic1 — Sat, 29 Oct 2022 21:48:19 GMT

@HomeBuyerSpring2021 wrote:
Your response was so detailed, I feel daft (been watching Downton Abbey having to ask for clarity. But I just want to make sure I understand. I know all of my credit card due dates & closing dates very well because of having to fix my credit after 2008 recession. But in my mind if I have a card (for simplicity sake) that is due on November 1 & reports on November 5, I thought that I'd be charged interest if I ...

1. Got my statement on October 5th for $100 (and paid it in full sometime in October) Thats fine.
2. Made purchases of $50, $100, $150 with the card from October 6-October 31 (and did NOT pay $300 more before November 1st) It will go on the next statement close date. Or 0% reporting.

I guess I'm not clear as to WHEN I have to pay my bill in order to not be charged interest. I've lived at 2 extremes ... ALWAYS paying my balances in full (and being totally ignorant of credit) to NEVER paying more than the minimum for several years (during recession, divorce & family health caregiving).

So I think this conversation has me realizing that I truly have no idea when credit cards apply interest. I know that when I had balances last month & paid all of my credit cards to $0 during October, I still got hit with interest on my most recent statements. So I'm confused as to when that interest was applied.

I thought in order to achieve AZEO, I'd have to pay all my credit cards to $0 before their due dates & then use ONE card to buy something between the due date & the closing date (in my example above, I thought I'd have to buy something between Nov 1-Nov 5 ... preferably on Nov 1-3 to give it a chance to go from pending to balance before reporting). Sounds like I have a totally wrong understanding. Can you help clear it up?

Simple. Use your cards as usual. Before the statement date ends on all cards. Pay all cards to $0 and leave one with <6% reporting. Then that one will post whatever you left on the card after the statement cut date. Then. Pay all of them before the due date. Once the statement cuts. You can use the cards again and has nothing to do with what closed before the next statement posted.

Re: Avoiding Zero Penalty

SouthJamaica — Sun, 30 Oct 2022 15:02:57 GMT

@HomeBuyerSpring2021 wrote:
Your response was so detailed, I feel daft (been watching Downton Abbey having to ask for clarity. But I just want to make sure I understand. I know all of my credit card due dates & closing dates very well because of having to fix my credit after 2008 recession. But in my mind if I have a card (for simplicity sake) that is due on November 1 & reports on November 5, I thought that I'd be charged interest if I ...

1. Got my statement on October 5th for $100 (and paid it in full sometime in October)
2. Made purchases of $50, $100, $150 with the card from October 6-October 31 (and did NOT pay $300 more before November 1st)

I guess I'm not clear as to WHEN I have to pay my bill in order to not be charged interest. I've lived at 2 extremes ... ALWAYS paying my balances in full (and being totally ignorant of credit) to NEVER paying more than the minimum for several years (during recession, divorce & family health caregiving).

So I think this conversation has me realizing that I truly have no idea when credit cards apply interest. I know that when I had balances last month & paid all of my credit cards to $0 during October, I still got hit with interest on my most recent statements. So I'm confused as to when that interest was applied.

I thought in order to achieve AZEO, I'd have to pay all my credit cards to $0 before their due dates

No, in order to achieve AZEO you need to pay all but one off before they even report the balances, which is long before the due date.

& then use ONE card to buy something between the due date & the closing date (in my example above, I thought I'd have to buy something between Nov 1-Nov 5 ... preferably on Nov 1-3 to give it a chance to go from pending to balance before reporting). Sounds like I have a totally wrong understanding.

Yes you do have a totally wrong understanding.
In order to achieve AZEO you need to pay all but one of the accounts down to zero by reporting dates.
In order to pay no interest you don't need to pay any account down to zero, you just need to pay off your previous statement balance before the upcoming due date.
Can you help clear it up?

Re: Avoiding Zero Penalty

disdreamin — Sun, 30 Oct 2022 18:59:30 GMT

What has been described does work, but I'm of the mindset that squeezing out every possible point on my FICO scores each month isn't worth the hassle of trying to maintain AZEO. If I were planning to apply for a new mortgage I'd [~~definitely~~ edited: probably] take the time to do it, but otherwise I let things roll.

As a general rule of thumb, I try to keep the amount posted on a single cc under 10% of the CL, and aggregate is usually 1-3%. I do pay all cc'd off bi-weekly when I'm paid. My FICO 8 bounces around a bit (~10 points) because of this, but as long as I'm not app-ing for anything, that has no impact on my day to day life.

I guess my point is, if you enjoy keeping your FICO scores optimized, have at it. But if you aren't planning to apply for a mortgage, and if your credit scores are generally in a range you are content with, you can also choose to not worry about AZEO.

Re: Avoiding Zero Penalty

disdreamin — Sun, 30 Oct 2022 19:07:13 GMT

@SouthJamaica wrote:
@HomeBuyerSpring2021 wrote:
I thought in order to achieve AZEO, I'd have to pay all my credit cards to $0 before their due dates

No, in order to achieve AZEO you need to pay all but one off before they even report the balances, which is long before the due date.

I don't think I'm following this either. My reporting date for some cards seems to be shortly after the statement due date, on what I would guess is the statement cut date for the next month. I think different cards report differently (I've heard tales of some that report on a certain day of the month, and others that update if the account balance is zeroed), and that's part of what needs to be figured out to do AZEO.

I also wonder if we need to distinguish more carefully between whether we are talking about paying the previous months balance or paying off all charges posted prior to the reporting date.

OP, one other thing you mentioned makes me think googling 'trailing interest' (or residual interest, if you prefer) might be helpful. That might help clarify why there were interest charges in a month where it sounds like you zeroed your account.

Re: Avoiding Zero Penalty

Zoostation1 — Sun, 30 Oct 2022 21:15:56 GMT

I don't think I'm following this either. My reporting date for some cards seems to be shortly after the statement due date, on what I would guess is the statement cut date for the next month. I think different cards report differently (I've heard tales of some that report on a certain day of the month, and others that update if the account balance is zeroed), and that's part of what needs to be figured out to do AZEO.

The due date you're referencing that's before the statement cut date is the due date from your PREVIOUS statement cut. Example will be below:

I also wonder if we need to distinguish more carefully between whether we are talking about paying the previous months balance or paying off all charges posted prior to the reporting date.

OP, one other thing you mentioned makes me think googling 'trailing interest' (or residual interest, if you prefer) might be helpful. That might help clarify why there were interest charges in a month where it sounds like you zeroed your account.

For MOST but not all cards they will report the balance on your statement cut date. This may take a few days to report but will normally be whatever your balance was on the statement cut date. Example using my 3 cards but have fudged what my due dates are:

Card 1 $1800 CL:

Previous due date 10/15 (from previous statement cut)

Statement closing and reporting date (for the current cycle) 10/20

Statement closing balance: $0

Balance reported: $0

Next due date 11/15

Card 2 $3500 CL:

Previous due date 10/20 (from previous statement cut)

Statement closing and reporting date (for the current cycle) 10/26

Statement closing balance: $0

Reported balance: $0

Next due date 11/20

Card 3 $3000 CL:

Previous due date (from previous statement cut): 10/20

Statement closing and reporting date (for the current cycle): 10/26

Reported balance: $233.000

Next due date: 11/20

In this instance only Card 3 would report at 8% (233/3000). Card 1 and Card 2 report 0.

Exceptions to this are cards issued by US Bank and Goldman Sachs (GS does Apple Card, also does GM Card via it's Marcus division). These cards report your balance on the last day of the month, not your statement balance. The other lender oddity is Chase bank. If you're doing AZEO it's best to not let any card from Chase be the one reporting. This is because while most issuers only update the reporting once a month, every time you pay chase to $0 they will report again.

Re: Avoiding Zero Penalty

disdreamin — Sun, 30 Oct 2022 22:05:14 GMT

@Zoostation1 wrote:
For MOST but not all cards they will report the balance on your statement cut date. This may take a few days to report but will normally be whatever your balance was on the statement cut date.
<snip>
Exceptions to this are cards issued by US Bank and Goldman Sachs (GS does Apple Card, also does GM Card via it's Marcus division). These cards report your balance on the last day of the month, not your statement balance. The other lender oddity is Chase bank. If you're doing AZEO it's best to not let any card from Chase be the one reporting. This is because while most issuers only update the reporting once a month, every time you pay chase to $0 they will report again.

Chase is the one bank I deal with that has one of the irregularities in reporting you mentioned, and it's why I mentioned the caveat (I left it general because I don't hold other cards with odd reporting schedules). Because I'm not concerned with AZEO, I zero my Chase cards twice a month. If I was trying to do AZEO, I'd be okay with letting one of those be the cards that report as long as they are only seeing regular minimal use and as long as I'm only paying the past statement amount due right before the due date (so whatever monthly recurring charge is going onto that card would already have posted prior to the payment). It would be a little more work, so choosing another card as the one to report would be easier, as you said.

Re: Avoiding Zero Penalty

Vuby22 — Mon, 31 Oct 2022 00:04:48 GMT

When you AZEO you care more about statement dates. Pay in full [the All Zero cards] on or slightly before the statement date and do not transact until the statement cuts. Pay in full [the Except One card] as soon as the statement cuts - meaning if it cuts, for example, on the 25th you pay it on the 26th.

Forget about due dates since you are already paying in full and should have grace periods on every purchase. This gets messed up when you do Balance Transfers and Cash Advances because those do not have grace periods (save 0% BT promos) and are usually the main culprits of trailing interest mentioned upthread.

Edit for caveats:

-the Except One card needs to be 8.9% or less utilization on the statement date or it will just wash some or all of the AZEO bonus you are trying to achieve.

-you cannot control reporting dates. you can only assume they snapshot your statement balance on the statement date and report up to 60 days later. yes you can theorize by looking at your credit report and find the pattern of reporting but as seen by Comenity and, in my experience, GS GM Card--it can still vary and go unreported for months.

Re: Avoiding Zero Penalty

Zoostation1 — Mon, 31 Oct 2022 02:44:52 GMT

@Vuby22 wrote:
When you AZEO you care more about statement dates. Pay in full [the All Zero cards] on or slightly before the statement date and do not transact until the statement cuts. Pay in full [the Except One card] as soon as the statement cuts - meaning if it cuts, for example, on the 25th you pay it on the 26th.

Forget about due dates since you are already paying in full and should have grace periods on every purchase. This gets messed up when you do Balance Transfers and Cash Advances because those do not have grace periods (save 0% BT promos) and are usually the main culprits of trailing interest mentioned upthread.

Edit for caveats:
-the Except One card needs to be 8.9% or less utilization on the statement date or it will just wash some or all of the AZEO bonus you are trying to achieve.
-you cannot control reporting dates. you can only assume they snapshot your statement balance on the statement date and report up to 60 days later. yes you can theorize by looking at your credit report and find the pattern of reporting but as seen by Comenity and, in my experience, GS GM Card--it can still vary and go unreported for months.

I've been lucky that Capital One (2 of my 3 cards) has been consistent about reporting the statement closing balance. How many days it takes them to report varies month to month but it's always the statement balance. Discover is consistent with using a balance from that day, but has not been completely consistent with regards to transactions initiated on the statement closing date. I've inititated transactions on the closing date 3 times, and 2 of those instances did not get reported. The 3rd time I did it they reported a pending transaction I initiated around 11pm on closing and was the only time my statement had a $0 balance but my reported was $23 (I personally don't think they should be allowed to report pending transactions but I don't make the rules/laws). To be on the safe side I don't any of my $0 cards on the closing date at all anymore.