Credit Utilization question

[Anonymous]

Hey guys,

Quick question: Let's say I only have one credit card which gives me more rewards the more I spend on it, with a limit of $500. Would it hurt my credit score to make large purchases (just under $500) on the card and pay them off immediately in order to get as many points as possible?

Further, should I be making most of my payments on the credit card (to earn the points) and paying off my credit card every couple of days or would that hurt my score?

Cheers

[Anonymous]

You can charge and pay and charge and pay.  That's what I do and I think that's the best way to get a credit limit increase quickly.  Just make sure you don't have a high balance after your statement cuts.  That utilization will drop your score like a rock!  If you need to keep a balance, try to keep it under 10%, even 30%.  Never higher.  Ideally, you should always carry a balance on your card at <1%-1%.

[Anonymous]

Thanks for the advice. I definitely don't need to keep a balanace - I am currently making a lot more than I am spending and have no old debts to pay off or anything like that. I was quite irresponsible in college and was regrettably usually too drunk to pay my bills when they were due, so I have an extremely low credit score. Given that I will never carry a balance, what exactly do you mean when you say "after your statement cuts"? So is it fine throughout the month to get close to the card limit and pay immediately as long as at the end of the month the card is paid off?

Thanks again.

[takeshi74]

What matters for revolning utilization are the balances and limits as indicated on your reports.  Day to day usage doesn't really matter.

Know when your accounts report and be aware of the balances and revolving utilzation that they are reporting on their report dates.  Creditors and scoring models will look at your reports.  They don't have access to current account activity for accounts that are not their own.

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@Anonymous wrote:

Ideally, you should always carry a balance on your card at <1%-1%.

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Ideally one should never carry a balance.  Carrying is when there is a remainder of a statement balance that is carried into the next cycle.

Worrying over 1% isn't really necessary and tends to be overemphasized a bit around here.  Just aim to generally keep it under 30%.  If one wants to eke out every possible point then one may want to drop revolving utilization as low as possible with only one balance reporting.  However, I've qualified for best terms on a mortgage with more than 1% and with more than one balance so don't just obsess over maximizing.  Understand scoring impact as well as the impact when a creditor reviews the credit profile.

[RonM21]

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@takeshi74 wrote:

What matters for revolning utilization are the balances and limits as indicated on your reports.  Day to day usage doesn't really matter.

Know when your accounts report and be aware of the balances and revolving utilzation that they are reporting on their report dates.  Creditors and scoring models will look at your reports.  They don't have access to current account activity for accounts that are not their own.

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+1

[Anonymous]

I have two cap1 cards with $500 balance on each and over the last month I have put over $3000 between the two and PIF immediatly.  I did leave a $5 balance on one to let it show up on the statement because all my other cards show $0.  

My scores in my sig reflect the difference from 95% UT to 1%.  it makes a huge difference. 

[jamie123]

Just to explain this a bit more because it is important...

Your lenders only report your balance once a month. This is usually 3 to 5 days after your statement due date.

What others here are saying is that you want to control the balance on your card during this week of the month.

To have the highest scores that you are capable of having, you NEED one credit card to report a balance of less than 10% of its credit line and all other cards report a $0 balance. You do not want all your cards to report a $0 balance or you will lose points. In my case, if I have all my cards report a $0 balance, I lose 18 points.

During this 1 week time, from a couple of days before the statement due date until 5 days after the statement due date, you really shouldn't use the credit card. You need to control the balance on the card during this time or anything that you charge might be reported. That's one reason you want at least 3 credit cards. You can just switch to another card during this week.

Now, it is only necessary to groom your scores this way if you want to see how high you can get your scores or you have plans to apply for new credit in the next month.

[Thomas_Thumb]

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@Anonymous wrote:

I have two cap1 cards with $500 balance on each and over the last month I have put over $3000 between the two and PIF immediatly.  I did leave a $5 balance on one to let it show up on the statement because all my other cards show $0.  

My scores in my sig reflect the difference from 95% UT to 1%.  it makes a huge difference. 

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Good work! 

I would suggest you continue testing your profile by letting a bit more report. I think you will find that as long as: aggregate utilization is held under 9%, any card that reports a balance on is held under 29% utilization and less than 50% of your cards report a balance (if you have more than 2 cards); your score should hold up quite well

No need to obsess about 1%.

[SouthJamaica]

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@Anonymous wrote:

Hey guys,

Quick question: Let's say I only have one credit card which gives me more rewards the more I spend on it, with a limit of $500. Would it hurt my credit score to make large purchases (just under $500) on the card and pay them off immediately in order to get as many points as possible?

Further, should I be making most of my payments on the credit card (to earn the points) and paying off my credit card every couple of days or would that hurt my score?

Cheers

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No it wouldn't affect your credit score at all, unless the balance winds up on your statement. So be sure it's paid off before the statement cuts.

[Anonymous]

I  think it's ridiculous that we must go through gyrations with our credit card payments in order to manipulate our score.  Altering our score by being a slave to what day of the month we make our payment in full?  It's really because FICO's algorithms are not capable of figuring it out by looking at the total pattern of our credit card use and payment practices.  Nothing's perfect, nobody's perfect, but for the leading credit monitoring company in the world I think this whole forum on credit card payment tactics is a sad commentary.

I charge everything possible to two credit cards in order to get the cash rebates.  I think that's a smart thing to do.  I have every credit card balance automatically paid in full every month, which I also regard as good practice.  Nevertheless, I am penalized for doing these smart things because the card companies naturally report my balances to FICO even though no balance is ever carried over.  So my smart credit card practices result in a lower FICO score.  This belies the "Fair" in Fair-Isaac.