@Anonymous wrote:Hi all,
I've been doing a lot of reading on these forums and finally had the guts to make my first post! I am having a bit of trouble understanding a strategy I keep seeing when it comes to rebuilding your credit. I promise I'm not a dunce, I just can't seem to grasp this one:
- Keeping util. under 30% of limit and paying balance off in full every month
Simple enough, right? Well, I ran across an answer to a question on CK that mentioned something about using that strategy above plus paying your balance in full 2 days before the due date and refraining from using the card until the statement posted, but I'm not quite sure how this helps your credit score if the CCC reports a zero balance every month. How does this help raise your score if the CCC just reports a zero balance every single month? Do you let it report a small balance and then pay it off the next month (and take the hit on interest), or how does it all work?
I'm overthinking it, I know, but I just can't get over this. What am I missing?
It's a technique used by us FICO strategists when we're getting "clean" for an application.
There's absolutely no reason to do this (other than if you're just trying to check where you're at at some given point in time after prettying up your report) other than the application scenario; however, revolving utilization is calculated on reported balances which is what's actually on your credit report and doesn't factor in whether you're paying in full (which you should be under typical circumstances) or carrying a balance.
As a result in order to maximize that part of the scorecard, the general suggestion is a good one: leave a small amount on one card to report, and have the rest of your cards report zero, by paying in advance of the statement date, not using the card, and getting it to report a $0 balance to bureaus. The reason for this is because part of the calculation involves the number of revolving tradelines with balances, and the fewer, (again, not all, as that is a different penalty for non-credit-use as absurd as that sounds), the better for all files as we understand it from large amounts of anecdotal data.
You can pay off the remaining small balance on the one card after the statement cuts, typically a 25 day grace period, to prevent having to pay interest even with this: you just need the statements to cut correctly, before and after do what you need to do.
