Utilization ratio-- PIF before the credit card statement due date

[creditmeister]

Hi all. I use an FIA joint CC with my girlfriend for monthly grocery purchases and other "common" expenses that we split. 

The CL on the card is $3,500. Typically we make about $1,000 of purchases throughout the month, and we PIF on each statement before the statement due date.

My question is, how is the utilization calculated in this case? Will it show roughly 30% utilization, or will the utilization calculation reflect that we PIF each month, leading to a low util?

Thanks for clarifying.

[GregB]

They will report the statement balance as your amount owed. Assuming that they report the correct limit, that would be 1000/3500= 29% util.

FIA does report high balance, last payment, and balance history each month. Anyone looking at that data can see you PIF each month but that data does not affect your FICO score.

[creditmeister]

Thanks for the reply.

What is best practice for using a credit card, but keeping the utilization ratio very good? Don't a lot of people use a CC for routine monthly expenses? How do they keep their FICO score optimized?

[MarineVietVet]

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@creditmeister wrote:

Thanks for the reply.

What is best practice for using a credit card, but keeping the utilization ratio very good? Don't a lot of people use a CC for routine monthly expenses? How do they keep their FICO score optimized?

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I have most of my cards autopay a small monthly recurring charge that I'd have to pay anyway. That keeps all of them active without thinking about it.

As for managing utilization everyone's situation is different and there is no one size fits all approach to this but what seems to work well for most people is to have only one of their cards report a small (<9% of it's credit limit) balance each month and then pay in full before the due date. You can use it as much as you want during the month but what's important is the reported balance because for most cards whatever is reported on the monthly statement is what is used to calculate utilization for the month.

You might have to play around with the percentages for a few months to see what works best for you. Some people say that 1-3% utilization helps the most. For others it might be 5-9%. As I said it's not one size fits all.

On any other cards always try and have them report a zero balance each month. That doesn't mean you can't use them just make sure that the desired zero balance on these accounts is achieved several days before their statements post.

Along with individual and overall utilization, FICO also scores the number of all types of accounts reporting a balance.at any one time Making sure less than half of all your accounts report a balance helps most people.

Now this approach really isn't necessary if you're not looking to apply for any credit in the near future or unless you are trying to tweak your score for maximum effect but some folks do this as a hobby just to see how high they can get their score.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[p-]

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@creditmeister wrote:

Thanks for the reply.

What is best practice for using a credit card, but keeping the utilization ratio very good? Don't a lot of people use a CC for routine monthly expenses? How do they keep their FICO score optimized?

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The best recommendation I've seen is to keep one card at a utilizaiton of between 5% to 9%, and the rest at 0.  If you are using it for daily spending to get rewards cash, you can still keep the balance low by paying it before the statement date.  That way your balance reported to the CB is lower.

[creditmeister]

That makes sense. I'll adjust and make sure to PIF on this account before the statement closing date, rather than the payment due date.

Thank you all for your advice.

[Guava]

PIF before the statement closing date may lead to $0 balance reported (I don't know if that's good or bad). If you want low utilization on CR, you need to pay most of your balance at least a couple of days before the statement closing date. Then pay it all off after receiving statement to avoid interest.

[creditmeister]

Guava-  I thought about that issue. From what I gather, people recommend leaving one card with a very low reported balance in order to optimize the credit score.

I wonder how material the difference would be between having all cards PIF before the closing date VS. keeping a negligible balance (less than 7% util) at the closing date and paying it off before the due date.

If it only makes a small difference of 10 points I won't even bother with the hassle. Any opinions?

[p-]

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@creditmeister wrote:

Guava-  I thought about that issue. From what I gather, people recommend leaving one card with a very low reported balance in order to optimize the credit score.

I wonder how material the difference would be between having all cards PIF before the closing date VS. keeping a negligible balance (less than 7% util) at the closing date and paying it off before the due date.

If it only makes a small difference of 10 points I won't even bother with the hassle. Any opinions?

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Well, unless you plan to apply for credit in the next month or so, you can experiment.  Try PIF to 0 and see what your score is, then try leaving a small amount on until after the statement cuts, then pay it off, and see what your score compares.  The effect it will have on your score depends on which bucket you are in, and other factors in your report.  All I can say for sure is you will likely have a better score with a small balance showing on one card. 

Remember, good operating practices are different than score optimizing practices.  If you're gardening, and aren't going to apply for credit, leave it all at 0.  Then, when you are 60 days out from your home or car loan, start prepping by manipulating your balances.  

 

[creditmeister]

Cool. Thanks a lot for the tips, I feel like I'm finding my way through the credit labyrinth with the help of this board.