Credit Card Utilization

[Anonymous]

I've heard differing information, and I'd like to set the record straight as I'm trying to build both credit history, and a solid credit score. I recently received my first credit card. I do not carry a balance at all. I use my card, wait for the statement, and pay the balance in full prior to the due date so I never incur any interest. I essentially am doing what I did when I was using my checking account for all purchases, except now I am funding the credit card from my checking account. However, this also means I am charging in excess of 30% each month, which I have recently learned is detrimental to my score. However, I was also told that if I pay off items as I charge them, but before the statement comes, then I never build any credit because my statement would always show a zero balance.

Now for the questions:

Is my score negatively impacted if I use more than 30% of my balance each month, even if I pay off the entire balance in full?

If I charge items to my card, but pay them off before it even reaches the statement date (not due date), does it even register as the card being utilized?

What is my best option for building credit? It's not like I don't have the funds for purchases I'm making, I just want to make and pay for my purchases in the manner that will best benefit my credit score.

Thanks!!

[CH-7-Mission-Accomplished]

The reason you put through a lot on your card is to get that creditor to raise your limits.

FICO scores care about the balance reporting on your statement date.

So use your card all you want during the month.  You could run it up to 80%, pay it down, run it back up, and on and on, and as long as you have paid it down to 2%-3% of your total credit limits (on all cards) you will get a great credit score that month.

I would not recommend repaying the card one charge at a time unless they are very large charges.  There have been a few reports of this spooking some lenders and they adverse action the account.  They can worry about fraud.  This is a rare report, though.

So if you have a $5000 card, you could put through $25,000  through it in a month, and as long as the statement balance is very low -- like $5 -- you will get the maximum FICO score and build your credit.

When reporting high credit on an account, most will list the highest amount owing ever, but that doesn't have to be a statement balance.

Use your card a lot to get increases, pay it down to $5 by statement cut date and you are good to go.

And if you mess up one month and have a high (or even very high) balance report, it will clear up next month if you fix it before the next momth's statement.

[Anonymous]

Welcome to the forum! Agree with CH7-Rebuilding. I just want to add that this could get labor intensive and if you don't have much time it's ok to let your cards report a balance even if it's 30% bc credit scores are just a snapshot in time. So the only time you must be absolutely careful with the reporting of the balances is when you're getting ready to app for credit (credit cards, auto loan, mortgage, etc) and you want to have the maximum score available to you given your specific file. Also, most people agree that you'll get  your best score when you have all your cards but one reporting $0 and the one reporting should be 1%. Finally, keep in mind that if you have more than one card (and you should), the scoring algorithm looks not only at the total utilization ratio of all cards combined but at the utilization ratio on a card per card basis.

[NRB525]

OP, what is the credit limit on the card? What are your scores from MyFICO?
The answer to your question depends on what your objectives are, and where you are in any credit building stage of your life.

If the card is $500 - $2000 there is not much point in trying to limit the utilization that is reported, one of the main objectives at this level is to find a way to show you need more credit, need a higher CL, and can handle some volume of transactions so that shows up on your credit report when you apply to other CCC.

[Anonymous]

Sorry for the delays in responding - the topic was moved and I couldn't find it/didn't receive emails for responses. Thank you all for the responses/follow up questions, they've already been hugely helpful.

The credit limit on my card is $5,000. For some reasons I'm having issues with MyFICO (keeps freezing/hanging up when I try to order a report), but per creditkarma, my Transunion is 670, and my Equifax is 661.

My credit used to be 700+ back when I was paying off student loans / car payments, but once those were paid off I had zero credit history, and my score began to drop. This has ended up with me having numerous denials for various cards. Finally managed to get one through my bank.

My goals are to build a credit history, as well as increase my credit score. I presently only have the one card through Bank of America, so any advice on how to proceed is appreciated. As I mentioned, I have essentially been running all charges through the CC, and then paying it off after the statement balance showed, but prior to the due date (I was under the impression charges needed to show up on the statement in order to prove a credit history). Increasing my credit limit would certainly be helpful in that I wouldn't feel pressured to constantly be making payments throughout the month in order to maintain low credit utilization, but I can live with that if necessary.

[StartingOver10]

It really is iimpossible to tell where you are in the process with Credit Karma scores. They have no relationship to FICO scoring models. Credit Karma scores are really meaningless as no one uses those scores for lending.

As to paying your balances in full after the statement cuts, as long as you aren't applying for credit it is fine to do it this way. It just looks like you are carrying a balance all the time as the way the cc's report, it is impossible to tell that you are paying the last balance in full and running up new charges each month. Took me a while to umderstand that it is best to pay the balance before the statement drop date so it actually looks like you paid it in full. You don't have to do it every month, but do pay it before the statement drop date a month or two prior to making application for a CLI or another card. This way you have prepped your credit profile before applying.

Clear the cookies in your browzer and try getting a FICO score report so you have an idea of where you stand.

[NRB525]

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@StartingOver10 wrote:

It really is iimpossible to tell where you are in the process with Credit Karma scores. They have no relationship to FICO scoring models. Credit Karma scores are really meaningless as no one uses those scores for lending.

As to paying your balances in full after the statement cuts, as long as you aren't applying for credit it is fine to do it this way. It just looks like you are carrying a balance all the time as the way the cc's report, it is impossible to tell that you are paying the last balance in full and running up new charges each month. Took me a while to umderstand that it is best to pay the balance before the statement drop date so it actually looks like you paid it in full. You don't have to do it every month, but do pay it before the statement drop date a month or two prior to making application for a CLI or another card. This way you have prepped your credit profile before applying.

Clear the cookies in your browzer and try getting a FICO score report so you have an idea of where you stand.

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This is not true at all. When you make charges on the card, and allow the statement to print with that amount, and then pay in full the balance by the due date on the statement, you show the statement balance, and no Planned/Minimum payment, then no payment at all, and the new balance shows. This is because, without a minimum payment, there's no need to show the payment amount which would be the prior statement amount (or potentially more than that if one is paying some of the new charges prior to statement cut).

This is my two AMEX cards last year, Delta Platinum on the top (short lived) and Delta Gold the second, both revolvers, both always PIF during this time period.

If one does not allow a balance to report on a card, by paying prior to statement cut, then there are zeros everywhere, except the OK for the month, which doesn't do much for building confidence about carrying credit and paying it off. In my opinion, someone trying to build a credit reputation is best served by always letting the balance report normally on the statement, to communicate this usage information out. Other CCC where one is going to apply have NO visibility to the charges if payments are made prior to statement cut.

[NRB525]

This, on the other hand, is what Carrying a Balance really looks like. The outstanding balance is shown, a Minimum Payment is proposed, and the Actual Payment received is shown. Here is where it is better to show more than the minimum payment, on manual review it will reflect higher than minimum payments.

[Revelate]

Think I may have missed something but Amex is among the lenders who explicitly do not report payments to the bureaus.  

That said I agree lenders are sophisticated enough they can typically tell there's activity on one's report; the fact that there are semi-consistent balances with pretty OK's is a pretty good indication that more than the minimum is being paid even with the bare minimum of reported information... whereas BOFA and others do report the payments in a given month which gives an incredibly good expenditure profile as you suggest.

It would be nice if all lenders reported payments, and then FICO took that into account for tradeline activity, but meh.  Oh well .

[CreditDunce]

As another poster said, just pay most (but not all) of the balance off before the statement cuts to maximize your credit score for that month.  It is ok to let high balances report when you are not planning on applying for more credit as long as you are PIF every month.  

If you have had the BoA card for a while (say a year), then it might be worth requesting a CLI.  BoA can be generous with CLI's especially for someone who has shown good usage.    The higher CL would reduce your normal utilization and make it more likely future CC's would be approved with higher limits.  If you do get a CLI, wait for the new CLI to report before app'g for anything new.  It will cost you a TU INQ.

If you haven't had the BoA card for very long, you may need to wait 6-12 months before applying for anything new.  With some history, most CCC's will approve for at least their lower tier cards.

My other standard advice is to check out the pre-qual sites: Chase, Cap1, Citi, Credit1 (for a laugh, don't apply for a Credit1 card), etc.   Pre-qual does not guarantee approval.  But your odds are fairly good if not much has changed since the SP was done.  I would be surprised if Cap1 didn't pre-approve you for something.   But please, don't apply for a card just because you are pre-approved.  Make sure it is the right card for you.

Lastly, if you do not have any open installment loans, you can consider a small shared secured installment loan.  Something in the order of $500 with a 2-4 year term.   The installment loan can be very helpful for rebuilders, but it would take time to improve your credit score.