How to use a credit card to improve credit score

[Anonymous]

Hello all,

I  am a bit confused about how to use a credit card wisely to improve ones score. Let's say given an ideal condition of having money in checkings account before one uses credit card. If I pay off the credit card every night after making the purchase on the same day so that my monthly credit card statement is zero, is that a good move. Or should I deliberately leave less than 30% amount on the card so that the statement reflects it and then pay the card as soon as the monthly credit card statement arrives ?

Please give me your suggestions,

Thanks.

D

[Anonymous]

If you have more than one card, leave them all at 0% balance except for one card. On that card, leave a 5%-9% balance. If you have only one card, simply leave a 5%-9% balance on it. 

[Anonymous]

Thanks for your views. I have 3 cards (Visa with 5k limit) master card cap one 750 $ limit) and AmEx premier gold reward(just approved for it and don't know exactly how a charge card works).I believe I would need to pay it off before the statement cycle closes , right ?

[Anonymous]

Yes, the AMEX Gold is a charge card. So balance must be paid off in full each month before you can spend anymore.

[ChesterPDexter]

Let me try to help.  You said, " I have 3 cards (Visa with 5k limit) master card cap one 750 $ limit) and AmEx premier gold reward(just approved for it and don't know exactly how a charge card works).I believe I would need to pay it off before the statement cycle closes , right ?"

A charge card works like this:  Every month you will be presented with a bill for your charges during that cycle.  You must pay the entire balance before it is due.  You cannot pay just a portion and carry the rest as a balance into the next cycle.

You can do that with revolving (non-charge) traditional credit cards.  You can pay just the minimum or any larger amount, but not the whole amount, if you choose.  You will then be charged interest on any amount you carry over into the next billing cycle,though.

Here is the advice I believe you are being given for optimum credit-score building:  Each month pay your balances BEFORE the statements close, except for one card.  Here is a good plan:  Pay the AmEx off before the statement closes, and pay the Cap One Mastercard before the statement closes, but let the 5K VISA close with a balance of $250-450 (this represents 5-9% utilization on that card.)  Then pay it after the statement closes.

Alternatively, you could pay off the AmEx and the 5K VISA before the statement closes and let the Cap One Mastercard close with a statemen balance of $37.50 - $67.50.  Again, this represents 5-9% utilization on that card.

Keep in mind that I have no idea whether AmEx "likes" it if you pay the bill before the statement closes.  I don't have a real Amex, so I can't advise you on that.  You could do the same as mentioned above, but let the AmEx close with a small balance, but AmEx's do not have limits, right?  I am out of my league commenting on AmEx issues but I just wanted to sketch out the math for you so you'd understand what was meant about the 5-9% utilization on one card only.

[Anonymous]

How would this be any better than what I am doing?

I have about 5-6 bills set to auto-pay off of each of my cards.  The logic behind this is that I keep in good standing with the card issuers by using their cards regularly.  So basically, I'll have iTunes purchases pull from my Apple barclaycard, Netflix auto-pay from my barclaycard Ring, car insurance pull from Citi, credit monitoring service pull from my Chase Freedom, etc. etc. etc.

This puts a small balance on each card each month.  Cards with larger CL's get the larger bills.  I'm purposely waiting for the statement to hit so usage shows on each of them.  I'm under the impression that potential card issuers want to make money and if they see zero balances on your other cards then they figure they'll never make money off of you.  If util's are under 10% - 15% then it shouldn't matter right?

Fico scores are important but so is credit worthiness and I think it's a good idea to be in good standing with all aspects of credit.  There was a time where I had a very good FICO score but couldn't get credit from any issuers due to lack of credit history and/or a baddie. I could have qualified for a HOUSE but not a Chase Freedom.

I'm no expert so maybe my logic is flawed.

[Anonymous]

I don't have an AMEX so I am not completely sure on what follows below, just going off what I have read here from time to time.

Don't pay the AMEX early, a charge card doesnt factor into your util. Let the full balance report, then pay in full. You only hurt your internal spending limit with AMEX if you pay early as they use the statement balance to do their magic with their own internal limits.

On your two credit cards, either one doesnt matter, pay one down to 0 before the statement, and pay the other down to 5-9% of the credit limit, then pay in full once the statement is generated.

Of course paying before the statement is only worthwhile if you will be apping for anything soon. If not then there is nothing wrong with letting balances report. FICO scoring only looks at util on a month by month basis and past util has no effect on your current score. Your score can tank with 99% util one month, then be great with 5% util the next.

[Revelate]

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@Anonymous wrote:

Hello all,

I  am a bit confused about how to use a credit card wisely to improve ones score. Let's say given an ideal condition of having money in checkings account before one uses credit card. If I pay off the credit card every night after making the purchase on the same day so that my monthly credit card statement is zero, is that a good move. Or should I deliberately leave less than 30% amount on the card so that the statement reflects it and then pay the card as soon as the monthly credit card statement arrives ?

Please give me your suggestions,

Thanks.

D

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The suggestions here are all for maximizing instant-in-time FICO scoring.

Improving your credit score: use the credit card, pay at least the amount required each month, every month, on or before the due date, and keep building that positive payment history.  Financially it makes sense to not take any interest charges which means mostly paying in full before the grace period is up, but from a FICO perspective over time that's irrelevant.

At some point in the future you can do all the tricks to game an approval, but the absolutely most important factor to increasing your credit score is just to keep paying all your bills on time, every time.

[Anonymous]

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@Anonymous wrote:

If you have more than one card, leave them all at 0% balance except for one card. On that card, leave a 5%-9% balance. If you have only one card, simply leave a 5%-9% balance on it. 

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I always get confused about this statement. Do you mean get the utilization down to 5-9% before the statement cuts, and then pay the remaining balance within the alloted time so you don't pay interest on it?

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

If you have more than one card, leave them all at 0% balance except for one card. On that card, leave a 5%-9% balance. If you have only one card, simply leave a 5%-9% balance on it. 

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I always get confused about this statement. Do you mean get the utilization down to 5-9% before the statement cuts, and then pay the remaining balance within the alloted time so you don't pay interest on it?

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Yes, but read the post above yours, first.  This is all pointless.  I think people put way too much effort into things on this site.  Just pay your balance every month, and avoid paying interest.  Your score will go up.  Once your score gets up in the range that you can be approved for the next credit product you want, then you can worry about maintaining a <10% utilization at the statement date.