Improving Credit Score by Timing Credit Card Payments

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natureexplorer
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Improving Credit Score by Timing Credit Card Payments

Post by natureexplorer » Thu Mar 13, 2014 1:35 pm

Will paying off "most" of the credit card balance before the statement closing date improve your credit score?

The rationale would be that it reduces your credit utilization. The other rationale is that you want to a leave small balance on the card so that it correctly shows as active on your credit report. A cursory Google search seems to suggest an optimal credit utilization be some where around 1 to 10%.

MnD
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Re: Improving Credit Score by Timing Credit Card Payments

Post by MnD » Thu Mar 13, 2014 2:20 pm

I do everything wrong as far as all these tricks and techniques.
I get new cards whenever "deals" are attractive enough, close old unused cards frequently, occasionally have high utilization and never ever pay a dime on an account before the due date. Both our scores are a little over 800. Churned our only other debt (mortgage) frequently during the great decline in mortgage rates. Is there some big cash prize for having a higher score? I think paying what you owe on time goes a long ways towards a good credit score.

natureexplorer
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Re: Improving Credit Score by Timing Credit Card Payments

Post by natureexplorer » Thu Mar 13, 2014 2:25 pm

MnD wrote:Both our scores are a little over 800. ... Is there some big cash prize for having a higher score?
Definitely not when you are already at over 800, though I could be wrong about that.

theghetto
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Re: Improving Credit Score by Timing Credit Card Payments

Post by theghetto » Thu Mar 13, 2014 2:28 pm

Keep in mind creditors can report your payment history and balance on any arbitrary day of the month. They don't send an update immediately after your statement or payment received. Your utilization at any point in time will fluctuate based on how much credit you happen to be using when they send your information to the bureaus.

That's why if you pay your bill 100% each month and never carry a balance, your credit report will still show some level of utilization. (which is usually a good thing)

If you are trying to qualify for the best rate on a loan or mortgage, and your average utilization is higher than 15% because you don't have much credit or just use the hell out of your credit cards, then sending a payment in immediately after your purchase, or just not using your cards for a month or two prior to applying for your loan would lower your utilization.

I've noticed that decreasing utilization from 5% to 3% increases the credit score, but then again that is a Credit Karma score.

Just know that its a myth to keep a balance on a credit card, its just a waste of money in interest payments. They can see full well how much you are using your credit simply by paying in full each month.

natureexplorer
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Re: Improving Credit Score by Timing Credit Card Payments

Post by natureexplorer » Thu Mar 13, 2014 2:34 pm

theghetto wrote:Just know that its a myth to keep a balance on a credit card, its just a waste of money in interest payments.
Just to bear, of course one would still pay off the entire statement balance by the due date.

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danwhite77
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Re: Improving Credit Score by Timing Credit Card Payments

Post by danwhite77 » Thu Mar 13, 2014 2:49 pm

You should read this post, it's an extraordinarily informative breakdown of how the FICO is calculated:

http://www.reddit.com/r/personalfinance ... e_numbers/
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theghetto
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Re: Improving Credit Score by Timing Credit Card Payments

Post by theghetto » Thu Mar 13, 2014 2:50 pm

natureexplorer wrote:Just to bear, of course one would still pay off the entire statement balance by the due date.


Oh I see. I suppose it would lower your utilization and thus improve your score, but you would have to send that first payment in before they update your credit record. Which would be a form of timing wouldn't it? :)

Brogleski
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Re: Improving Credit Score by Timing Credit Card Payments

Post by Brogleski » Thu Mar 13, 2014 2:53 pm

theghetto wrote:Keep in mind creditors can report your payment history and balance on any arbitrary day of the month. They don't send an update immediately after your statement or payment received. Your utilization at any point in time will fluctuate based on how much credit you happen to be using when they send your information to the bureaus.

That's why if you pay your bill 100% each month and never carry a balance, your credit report will still show some level of utilization. (which is usually a good thing)

If you are trying to qualify for the best rate on a loan or mortgage, and your average utilization is higher than 15% because you don't have much credit or just use the hell out of your credit cards, then sending a payment in immediately after your purchase, or just not using your cards for a month or two prior to applying for your loan would lower your utilization.

I've noticed that decreasing utilization from 5% to 3% increases the credit score, but then again that is a Credit Karma score.

Just know that its a myth to keep a balance on a credit card, its just a waste of money in interest payments. They can see full well how much you are using your credit simply by paying in full each month.


You're correct that creditors can update information at any time of the month. However, they usually (almost always?) only report the statement balance and not the entire balance. If you pay off the balance before the statement cuts, they will report zero and leave it there until the next statement cuts.

The OP is correct, that having only 1-9% of your utilization reporting at a time is optimal. Also, under some FICO models (there are 49 of them by the way) it can be slightly (emphasis on the slightly part) detrimental to have many small balances reporting. So if you know you're applying for a loan next month, and you want to squeeze out a few extra FICO points, then let a small balance report on one credit card. Pay the rest of your cards off so that they report a zero balance.
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Re: Improving Credit Score by Timing Credit Card Payments

Post by Spirit Rider » Thu Mar 13, 2014 3:31 pm

theghetto wrote:Just know that its a myth to keep a balance on a credit card, its just a waste of money in interest payments. They can see full well how much you are using your credit simply by paying in full each month.

To clarify, even though you might have meant this also. When you carry any balance, not only do you pay interest on that balance, you have no grace period and interest charges start instantly on any charges.

Along with carrying a balance it is also myth that making charges improve your credit score. It is generally a good idea to make a charge occasionally, because some cards will get cancelled for no activity.

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Re: Improving Credit Score by Timing Credit Card Payments

Post by natureexplorer » Thu Mar 13, 2014 3:47 pm

Brogleski wrote:Also, under some FICO models (there are 49 of them by the way) it can be slightly (emphasis on the slightly part) detrimental to have many small balances reporting. So if you know you're applying for a loan next month, and you want to squeeze out a few extra FICO points, then let a small balance report on one credit card. Pay the rest of your cards off so that they report a zero balance.
Interesting.

kaudrey
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Re: Improving Credit Score by Timing Credit Card Payments

Post by kaudrey » Thu Mar 13, 2014 4:06 pm

However, if you have good credit already, I am not sure it makes a difference. My score is also over 800, and I pay off my cards in full every month a few days before the due dates. It is not hurting my score to just pay on time.

NightFall
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Re: Improving Credit Score by Timing Credit Card Payments

Post by NightFall » Thu Mar 13, 2014 4:37 pm

We time our credit card payments to be a few days before the due date. Of course we pay of our balance in full and don't come anywhere close to our credit limit. Our score is 843 out of 850 last time I checked, so that strategy must work well.

Shredder
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Re: Improving Credit Score by Timing Credit Card Payments

Post by Shredder » Thu Mar 13, 2014 5:06 pm

Everytime I get near my credit limit they just increase it. I'm up to ~ 20k on my Amex alone.

I have had a late payment or two but that's due to my inattention. I didn't really see much of any effect honestly. I have all my credit cards on auto pay now - I just watch Mint religiously to make sure everything is on the up and up.

ajcp
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Re: Improving Credit Score by Timing Credit Card Payments

Post by ajcp » Thu Mar 13, 2014 7:01 pm

Short answer, yes. But:

Unless you are applying for credit/a loan within the next month, it doesn't matter. Not even a little bit, it matters exactly 0%.

If you are about to apply for credit or a loan, it doesn't matter if your credit is "good enough". (What's good enough? It depends what you're applying for, but mid-high 700s at most) As MnD said, there's no cash prize for a higher score.

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bertilak
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Re: Improving Credit Score by Timing Credit Card Payments

Post by bertilak » Thu Mar 13, 2014 7:53 pm

Here is a situation I ran into ...

Got me one of those AMEX Preferred Blue cards with pretty good cash-back percentages: 6% on my biggest category, groceries. I started putting nearly everything on the AMEX.

I paid it off every month, but the high percentage utilization knocked back my FICO score.

To fix the above I started paying weekly. This kept the utilization low but also resulted in a zero balance. That in itself was not a problem but after a few months of that I let things go a bit so there was actually a statement balance. My score now took another hit because suddenly "a previously inactive credit line became active." AMEX told me they don't report anything at all to the credit bureaus if the statement balance is zero. My account goes off their radar. When it shows up gain the bureaus take (unfavorable) notice.

Now I still pay about four times a month to keep the utilization low but time it so the last payment isn't made until after the statement is generated. I also asked for and got an increase in the card's limit.
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dm200
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Re: Improving Credit Score by Timing Credit Card Payments

Post by dm200 » Thu Mar 13, 2014 9:28 pm

I am confident that, for a credit card (revolving), there is absolutely NO benefit on your credit score to leave a small runnning balance at all times.

Angelus359
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Re: Improving Credit Score by Timing Credit Card Payments

Post by Angelus359 » Fri Mar 14, 2014 11:07 am

I use first american bank. They have a bill pay system where you can make automatic payments weekly.

I have all my cards set to full balance autopay. On top of that, I use the bill pay system to automatically put 70$ per week down on my credit cards. It keeps an extra 280$ per month from showing up on my credit history.
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natureexplorer
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Engineering your credit score

Post by natureexplorer » Fri Mar 14, 2014 11:22 am

danwhite77 wrote:You should read this post, it's an extraordinarily informative breakdown of how the FICO is calculated:

http://www.reddit.com/r/personalfinance ... e_numbers/
This is indeed quite specific.

I quote below the section on credit utlization and highlighted some parts.

Your amounts owed is 30% of your FICO score.
This category is somewhat complex, and it generates a lot of confusion when discussed. Also called credit utilization, this includes the following sub-factors (among other things), in varying amounts:
The total amount of credit available vs. the total amount of balances on revolving accounts.
The amount of credit available on individual revolving accounts vs. the individual balances.
The original loan amounts on installment accounts vs. the current loan balance.
Amounts owed.
Number of accounts with balances.
Your utilization is calculated using the most recent reports from your financial institutions. Since most banks and credit unions report the statement balance to the bureaus, you can safely assume that your most recent statement balances are what your score is based off of.
One important thing to note is that utilization does not have a history. There is no "average utilization". It is solely based on the most recent reports from your financial institutions. So it really is only a "snapshot" of your liabilities, and can improve or crash in the span of less than a month. It's generally advised that you can ignore utilization until a month or two before applying for a new line of credit.
Generally speaking, if you are above 30% of your credit limit, a lender may consider you to be higher risk. A statement with a 30% utilization will hurt your score until a lower balance is reported. This is only a transient problem, however, since (once again) utilization has no memory.
It logically follows that paying down debts and keeping balances low will increase your score. The lower your balances, the better. In addition to this, it is often helpful to apply for (or randomly be approved for) limit increases. Just be wary of hard inquiries.

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