Somewhat simple credit questions

[Anonymous]

Hello, I am new to credit and I have several questions, which seems pretty easy but I could not find a satisfying answer yet even after doing lots of research.

Regarding the credit utilization ratio (and its famous 30% "upper bound"), I can't really figure out how it is really computed :
Let's use a short example : if during one cycle I do the following (with a 1000$ total credit line) :

- 200$ purchase

- full payment

- another 100$ payment

- full payment

- CLOSING DATE

Is my total credit utilization 20% ? (like the maximum credit line I used over the cycle), or 30% (sum of expeanses over credit line available) ?
If I now decide to make the second full payment (of 100$) after the closing date, will my ratio would then be 10% or 30% ?

- Also, if I pay before the end of the cycle (so I will then have a zero balance and no payment due), does that mean I have a 0% credit utilization ratio ?

Finally, with the intent of wanting to maximize my credit score increase at each cycle, it is smarter to pay in full before the end of the cycle/closing date or to wait and pay between the closing date and the payment date ? I had both answers and I am a bit confused now.

Thanks in advance for your help! 

[sarge12]

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@Anonymous wrote:

Hello, I am new to credit and I have several questions, which seems pretty easy but I could not find a satisfying answer yet even after doing lots of research.

Regarding the credit utilization ratio (and its famous 30% "upper bound"), I can't really figure out how it is really computed :
Let's use a short example : if during one cycle I do the following (with a 1000$ total credit line) :

- 200$ purchase

- full payment

- another 100$ payment

- full payment

- CLOSING DATE

Is my total credit utilization 20% ? (like the maximum credit line I used over the cycle), or 30% (sum of expeanses over credit line available) ?
If I now decide to make the second full payment (of 100$) after the closing date, will my ratio would then be 10% or 30% ?

- Also, if I pay before the end of the cycle (so I will then have a zero balance and no payment due), does that mean I have a 0% credit utilization ratio ?

Finally, with the intent of wanting to maximize my credit score increase at each cycle, it is smarter to pay in full before the end of the cycle/closing date or to wait and pay between the closing date and the payment date ? I had both answers and I am a bit confused now.

Thanks in advance for your help! 

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Your revolving credit utilization is computed from the reported balances at the time of the credit pull. The balance at the time the statement closes is what will be reported...not the due date. The due date has more to do with how much balance you will have to pay interest on, and also can incur late fees if the minimum is not payed by the due date. In your example the utilization would be 0%, because you paid in full before the statement closing date. The balance shown on the statement is what will be reported to the CRA's, and as long as it is paid in time to post to the account, and you paid it in full a few days before the statement prints, it will show and report a zero balance. Also, it is important to know that utilization is a point in time metric, meaning it only uses that metric at the time of the credit pull. If you were penalized 50 points on fico due to having 60% utilization, and you then pay all cards off to have <29% utilization on 1 card and less than 9% total on all cards, you will get all those points back...every sing one. For this reason utilization is the one thing you can control to very quickly improve your score. It is also in my opinion one of the least important metrics, because you can regain every lost point immediately. That is not the case with payment history, AAoA, AooA, credit mix, derogetories, or even inqueries. All of those that cost you points cannot be as easily cured, and usually only time will regain the points lost due to those reasons. If you charge 800 dollars to the card in the previous example, but PIF 4 days before the statement closing date, it will still report 0%. Now maxing out utilization points requires at least 1 card to report a balance...AZEO...The consensus is aggregate utilization less than 29%, and single card utilization less than 9%, with less than 50% of your cards reporting any balance...so you need 3 credit cards to do AZEO. It might even be less than 40% of cards reporting a balance, I am not sure. I have over 20 cards, so I stopped worrying about utilization some time ago, since I always PIF. I also have 1 card that is over 50% utilization that my sister is an AU on, only she uses it and pays the bill, but looking at my scores, it is not hurting my scores much.

[sarge12]

OP...in regard to getting maximum CLI's, PIF multiple times per month can lead to not receiving a CLI, if the highest balance ever on the card is only a small fraction of the current credit limit. They never give me credit limit increases, but my starting limits are always over 10,000 dollars. A lot of my cards, and I have over 20, have never reported a balance...ever. I have used them, but always payed it in full before the statement period closes. If you are new to credit, not using enough of your existing credit limit will not be an issue. Just know when the statements closes and pay it in full a few days earlier if you don't want it to report, and wait till the statement closes to pay in full if you do want it to report. In other words, if using AZEO, pay all cards except 1 before the statement cuts, and pay that one in full before the due date. If you pay them all in full before the statement cuts it will show as non-use of revolving credit and knock some points off your score. It does not matter how much of the credit limits you use if you pay it a few days before the statement closes, with 1 exception. If you use close to the credit limit on a card, it could prompt an adverse action(AA) by that card issuer. It is not likely on a 1000 dollar limit card though.

[FireMedic1]

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@Anonymous wrote:

Hello, I am new to credit and I have several questions, which seems pretty easy but I could not find a satisfying answer yet even after doing lots of research.

Regarding the credit utilization ratio (and its famous 30% "upper bound"), I can't really figure out how it is really computed :
Let's use a short example : if during one cycle I do the following (with a 1000$ total credit line) :

- 200$ purchase

- full payment

- another 100$ payment

- full payment

- CLOSING DATE

The info all over the internet of dont go over your 30% of your credit line isnt really true. You can use all you want of you credit line. Its whats reported that matters. The more you use the card. The more money the creditors make. In the case of Cap1. They like this. And it helps to get CLI's. So your $1000 limit example you can charge anything that doesnt go over the limit. And pay it down to less than 2-6% before statement date. Which seems to be the sweet spot. Then pay whatever is posted before the due date.

Is my total credit utilization 20% ? (like the maximum credit line I used over the cycle), or 30% (sum of expeanses over credit line available) ?
If I now decide to make the second full payment (of 100$) after the closing date, will my ratio would then be 10% or 30% ? You dont have to do all this. Only if your going to use more than the $1000 in that month. Yes pay and charge more. Otherwise. No.

- Also, if I pay before the end of the cycle (so I will then have a zero balance and no payment due), does that mean I have a 0% credit utilization ratio ? Yes.

Finally, with the intent of wanting to maximize my credit score increase at each cycle, it is smarter to pay in full before the end of the cycle/closing date or to wait and pay between the closing date and the payment date ? I had both answers and I am a bit confused now.

Thanks in advance for your help! 

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To max your score. You need 3 cards and an installment loan. This is the FICO bonus I call it for rebuilders. Have one card report less than 8.99% and the other 2 report 0. You can charge all you want on all your cards. But follow AZEO. Its that simple. And welcome to the FICO Forums!

[KJinNC]

This has been stated before, but to make it simple:

Utilization is based on your balance at the time the statement cuts, vs your limit.

You can run $1,500 through that card with the $1,000 limit by making numerous payments throughout the month, and if the balance is $0 when the statement cuts, that will be what counts for utilization. Or, if balance is $150 at the time the statement cuts, utilization on that card will be 15%.

The card company will know all of your use of the card, but the rest of the world will only know what is on your statement when it cuts.

Your overall utilization is calculated by adding up your balances and comparing them with the sum of your credit limits.

Note: most scoring models including FICO 8 have no "memory" of past balances. Your cards can be maxed out every month for ten years, and once you pay them all off and they cut new statements showing that they are paid off, you will get all of the points you'd have had all along if you had always paid in full before the statement cut. The opposite is also true, if you keep them PIF for ten years and then you max them all out, you'll lose the same points as if they'd been maxed out all along.

[KLEXH25]

It looks like everyone has answered your questions so far, but I need to add something. NOT all lenders report on the statement cut date. For example, my DCU Visa statement cuts on the 12th, but they don’t report on that date. They report at the end of the month, on the 30th, and it will be whatever my balance is then. I found this out the hard way, trying to implement AZEO. It wasn’t until I looked at my Experian app to see the date when each account reports. Also, I just got a PayPal MC, and it seems they (Synchrony) also reported on a different date than my last statement. I’m still trying to figure them out.

Just remember that it’s only really important if you’re applying for anything new. Otherwise you’ll drive yourself crazy.