@Anonymous wrote:
- I've been confused with a bunch of posts from other parts of this community generally about paying off a credit card in full just before a statement is produced as to avoid a balance being reported. I thought a balance shows utilization of a credit score. Why would a balance being reported affect my score negatively?
Perhaps, to control the AZEO card reporting a balance?
All Zero Except One card reporting a small balance e.g. $5-$10. Use a bank card. Do not use a store card.
Get your CC aggregate utility at or below 8.9% and one individual utilization at or below 28.9% for full FICO points optimization.
Scores will react positively with one revolving credit card reporting a balance.
I would recommend reading the below from ABCD2199
The Truth about Credit Card Utilization
My 11 Rules to Credit Rebuilding
FICO Score: What to pay down first?
@Anonymous wrote:
- I've been confused with a bunch of posts from other parts of this community generally about paying off a credit card in full just before a statement is produced as to avoid a balance being reported. I thought a balance shows utilization of a credit score. Why would a balance being reported affect my score negatively?
It's not so much the balance(s) reporting as it is utilzation - both aggregate and individual. FICO penalizes for high utilization and rewards for low utilization. There are utilization percentage thresholds that affect scoring once passed either above or below (red is too high):
89%, 69%, 49%, 29%, and 9%.
The above thresholds apply to both individual and aggregate util. Allowing your utilization to increase above a threshold will result in a scoring penalty - usually around 5-15 points, depending on the credit profile. However, utilization has no memory - so any point penalty imposed due to increased utilzation will be reversed once that utilization is lowered to move back down below a threshold. For example, say you allow your aggregate util to increase from 8% to 30% in March, and are hit with a 15 point FICO drop; then, in April, you pay your balances back down to 8% -- those 15 points will be regained. To prevent loss of points, it is recommended to keep your aggregate utilization below 9% and your individual utilization below 29%.
Util is calculated as follows:
Aggregate: total balance of all cards / total credit limit of all cards
Individual: card balance / card's credit limit
Many people that are in the rebuilding stage of their credit life don't want to lose a single point - even if it's temporary; they also tend to be dealing with low-limit cards which make it really difficult to stay below 29% with basic usage - so they micromanage their balances to control the utilization that is reported to the bureaus. To do this, they pay their balances down before the statement cuts for their cards, then they pay whatever is remaining by their due date. Since most creditors report whatever the balance is as of your statement closing date, paying the balance down to less than 29% prior to the closing date will prevent high utilization from reporting to the credit bureaus.
Another method of micromanaging is AZEO (all zero except one). FICO also considers how many revolving accounts are reporting a balance and will score you accordingly. Too many accounts with balances can result in a penalty of 5-10 points - which varies depending on the scoring version (mortgage scores seem most sensitive to this). It is recommended to have no more than 1/3 of your cards reporting a balance at any given time to avoid scoring penalties. AZEO (having all cards report a zero balance with the exception of one which will report a small balance of less than 9%) can yield a 10-15 point boost on some profiles. So.. those practicing AZEO will pay the balances on all of their cards to zero prior to the statement closing date so they report $0 to the credit bureaus, and leave a single card with a low balance that will report to the bureaus.
Keep in mind: It is not necessary to practice AZEO at all times. AZEO is a trick with offers a one-time score boost for FICO and it's good to use prior to applying for new credit to squeeze out every available point possible. AZEO points are not cummulative - in other words, the points will not build upon themselves month after month of being AZEO; to keep the initial boost, you must continue AZEO each month - once you are no longer at AZEO, you will lose whatever bonus points were gained. It's just a good thing to know if you should need a few extra points to make it to the next best interest rate tier. I always recommend folks test it on their profiles at least once - just to see how your scores respond - then you can go back to your 'normal' credit management behavior. You can also manage your utilization if you want -- but if your overall profile is strong and you have decent credit limits it's not really necessary so long as you are not maxing out cards and paying your balances off in a timely fashion (or in full each month).
