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How does this make sense?

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How does this make sense?

Everyone says to use your credit cards, but pay them off at the end of the month BEFORE the billing cycle hits.

 

That way it shows $0 on your credit.

 

But if you use your card and pay it off before the card reports, how does FICO know you used the card at all? It would be the same as never using the card, right?

Message 1 of 10
9 REPLIES 9
Super Contributor

Re: How does this make sense?

FICO doesn't care how you use your cards as long as A balance is reported. Hence the AZEO method. You have to show use, but it could be as little as $5. Where it really matters is during a manual review where an underwriter will look at the highest balance reported on a revolver. Depending on the underwriting, $0 used could be a plus or negative.








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Message 2 of 10
Member

Re: How does this make sense?


@Brian_Earl_Spilner wrote:

FICO doesn't care how you use your cards as long as A balance is reported. Hence the AZEO method. You have to show use, but it could be as little as $5. Where it really matters is during a manual review where an underwriter will look at the highest balance reported on a revolver. Depending on the underwriting, $0 used could be a plus or negative.


So in theory you can just never use a card, always have it report 0, and it would be the same as using it extensively and paying it off each month.

 

Message 3 of 10
Established Contributor

Re: How does this make sense?

I wouldn’t say that everyone says to do this. It’s only really important if you have a low credit limit or a high balance to pay some of the balance off before the statement reports to keep utilization low. But this could be anywhere from 0 to 8.9% utilization. Also, it’s only important in the sense of optimizing your credit scores. If you have no plans to apply for anything anytime soon, then it doesn’t really matter what balance reports. I would just be careful of maxing out a card (whether it’s temporary or not).


September 2019:

Stats:
Message 4 of 10
Frequent Contributor

Re: How does this make sense?

You wan't to report a balance so it shows you're using.  As noted above, one card is all that's needed to show use and not suffer the 'no CC's reporting a balance' penalty.  

 

Instead of the generic statement of "pay by the end of the month", let's say you have $0 on your card and spend $100 on 8/12.  Statement cuts on 8/24 and it shows $100 of your credit limit used and a minimum payment of $20 is due by 9/20.  $100 will report to the credit bureau (showing use) and setting your UTL %.  You can then pay the full $100 by 9/20 and will not be charged interest.  So you want to report a balance, but then pay it off.  There are plenty of tricks to maximize scores as noted with AZEO, but the above is all that is needed to show use.  



FICO 8 as of 09/17/19
FICO 9 as of 09/02/19
AoOA - 23Y6M | AAoA - 11Y4M | AoYA - 0Y1M
1 30 day late on EX (12/2012)
Open: 9 CC | 2 RC | 1 PLOC | 1 MTG loan | 1 Auto loan
Closed: 1 MTG loan | 1 Auto loan | 2 RC
Message 5 of 10
Established Member

Re: How does this make sense?

I would guess that  if you apply for CLI or additional credit card or installment loan from same lender than not using a card is not the same as using it and paying before end of billing cycle because the lender will have access to all its internal data about how you used your account which is more than what the lender reports to the CRAs. Maybe this is only important in a manual review. But I would guess that if you apply for a mortgage then the lender will review its internal data about any credit cards or installment loans that you have with them.

Message 6 of 10
Community Leader
Valued Contributor

Re: How does this make sense?


@The_Rooster wrote:

@Brian_Earl_Spilner wrote:

FICO doesn't care how you use your cards as long as A balance is reported. Hence the AZEO method. You have to show use, but it could be as little as $5. Where it really matters is during a manual review where an underwriter will look at the highest balance reported on a revolver. Depending on the underwriting, $0 used could be a plus or negative.


So in theory you can just never use a card, always have it report 0, and it would be the same as using it extensively and paying it off each month.

 


Not exactly, and if your cards go dormant for quite sometime your creditors can/may close them for no activity.

 

Also some creditors Citi comes to mind won't report monthly if there is no activity.  I had a card with a decent limit increase that was never reported due to no use of card, which for some can influence  their utilization.

Message 7 of 10
Super Contributor

Re: How does this make sense?


@The_Rooster wrote:

@Brian_Earl_Spilner wrote:

FICO doesn't care how you use your cards as long as A balance is reported. Hence the AZEO method. You have to show use, but it could be as little as $5. Where it really matters is during a manual review where an underwriter will look at the highest balance reported on a revolver. Depending on the underwriting, $0 used could be a plus or negative.


So in theory you can just never use a card, always have it report 0, and it would be the same as using it extensively and paying it off each month.

 


From a FICO standpoint, yes. Score is calculated off what's reported. Manual review is where highest reported balance matters. At that point a lender can say, "we're going to decline extending you credit because you already have $30k and never use more than $5. You have too much available credit already."








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Message 8 of 10
Valued Contributor

Re: How does this make sense?


@Jnbmom wrote:


Not exactly, and if your cards go dormant for quite sometime your creditors can/may close them for no activity.

 

Also some creditors Citi comes to mind won't report monthly if there is no activity.  I had a card with a decent limit increase that was never reported due to no use of card, which for some can influence  their utilization.


 

This is why I have at least one auto billed service on almost every CC I have, creates use on something I have to pay monthly anyways. But doesn't require me to keep them all in my wallet and try to remember to put spend on them. Which leaves my wallet open for the daily drivers.

 

 

 

 

Message 9 of 10
Super Contributor

Re: How does this make sense?

As long as you're using your card(s) every month, simply PIF your previous statement balance and let the remaining balance report.  This way you'll never pay a penny of interest, but also never report a $0 balance.  Take a look at what your reported balance is generally from month to month.  For example, if you're spending $200-$500 on average per month, you're reported statement balance (after you PIF the previous $200-$500) will almost always land in that $200-$500 range.  Then look at that number expressed as a percentage of the card limit.  If it's a $3000 limit card, you'd be reporting 7%-17% utilization on it from month to month.  If it's a $5000 limit card, you'd be reporting 4%-10% on it each month.  These are all fine/healthy numbers. 

 

Now, if you're talking a $1000 limit card, that would of course be 20%-50% reported monthly, something you may want to remedy by paying an amount more than your statement balance (of $200-$500) but less than your total current balance of (say) $400-$1000.  This would be considered a "heavy spend" though relative to your limit and would position most to achieve a CLI without much trouble (especially with PIF/Transactor behavior monthly) which would result in the managing of these numbers to become easier over time.

Message 10 of 10
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