In this post, I wanted to let you know what I think is the simplest trick to getting your credit upscale with very little effort – that is, you need to have all (or most) of your credit card balance before the due date, not just before the due date Pay off statement even includes. Let me explain.
What factors affect your creditworthiness?
Good credit is important not only for maximizing credit card rewards, but for so many things in life as well. There is often confusion about how different actions – like applying for credit cards or closing credit card accounts – can affect your credit score.
Here are the general factors that will make up your credit score:
- 35% of your score is your payment history (the percentage of payments you made on time).
- 30% of your score is your credit use (how much credit you use compared to your total limits)
- 15% of your score is your credit age (the average age of your open accounts)
- 10% of your score is the types of loans you are using (how many different types of loan applications you have)
- 10% of your score is your requests for new credit (how often you applied for credit)
Breakdown of how your credit score is calculated
In this post, we’re going to focus on the two most important aspects of your credit score that you can easily control:
- Maintaining a perfect payment history should be easy – always withdraw your balance before the due date
- Keeping your loan utilization down is something you can easily control, and that’s what I wanted to focus on in this post
What is Credit Usage?
Loan Utilization is the amount of your available credit that you are using. For example, let’s say you have a credit card with $ 10,000 in credit and spend $ 3,000 during one billing cycle. Your loan utilization would be 30% since you are using $ 3,000 of your available line of credit of $ 10,000. Generally it is recommended that you Do not use more than 30% of your available balance.
Why are card issuers interested in credit usage? Because it is seen as a good indicator of how fiscally responsible and risky you are as a customer.
For example, if you use 90% of your credit every month and then apply for a new credit card, an issuer may think you are at higher risk because you are using most of the credit you get. If you get even more credit, can you use it responsibly?
Using just a small percentage of your credit shows that you are good at managing your credit and you probably won’t have a problem getting even more credit.
Pay out your balance before the bank statement is closed
Let me get to the point – I pay off most of my credit card bills before the statement is even closed. Yes, I am talking about the settlement completion date, which is often a few weeks before your payment is due.
The closing date of the bank statement is on the left, the payment due date is in the middle
This is an important factor that helps ensure that I have great credit and that is why my credit utilization is only around 1%. Granted, I have a lot of credit cards and therefore a lot of available funds, but my workload would not be so low if I had not consistently paid out my funds before the settlement date.
Some important aspects of my credit report
What exactly is my strategy?
- I check all of my credit card transactions once a week
- When I do this, I double-check all of the fees to make sure they are correct and I also withdraw funds on each of my cards
- Given the number of cards I have, I find this easier than setting a different calendar reminder for each card
How exactly does this help my loan use? Typically, your credit usage is measured using your balance on the closing date of your bank statement. So what is shown is what matters:
- If you have $ 10,000 in credit and $ 3,000 in fees at the time you close the statement, your utilization is 30%
- If you have $ 10,000 in credit and have already paid out all of the $ 3,000 in fees, your occupancy will be 0%
- There is nothing wrong with taking a hybrid approach either. For example, if you have $ 10,000 in credit and you pay off $ 2,000 of the $ 3,000 charge before the settlement date, your utilization will be 10%
- Note that in some cases your occupancy will be measured by your average daily credit. Even with this metric, however, it is much better if you regularly pay off your bill ahead of time
When you have the liquidity to do it, this is an easy way to improve your credit score. Even if you don’t do this continuously, it is absolutely vital that you do so in months when you have high fees and are using most of your credit, as very high credit utilization, even for just one billing cycle, can cause some temporary damage Your credit score.
If you are able to do so, withdraw your credit card balance early and / or frequently, ideally before the statement is even closed. This will help keep your credit utilization down. This is an important factor that can affect your credit score.
My credit score is near perfect, and one reason is because my credit utilization is around 1%. This is primarily due to the fact that I usually pay off my credit card balance before closing the bank statement.
Does someone follow the same strategy as me and usually withdraw their credit card balance before the statement closing date? If so, what is your strategy – will you pay out all of the amount, part of the amount, or …?