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Responsible credit use and on-time payments are the best ways to improve your credit score, but your credit utilization is also very important. After you make purchases with your credit card, the statement balance is reported to the credit bureaus.
If you pay your bill soon enough, you can prevent the ding to your credit from a temporarily high balance! Here are some tips to boosting your credit score when you pay your credit card bill.
How Often Should I Pay My Credit Card Bill?
Your credit score isn’t determined by how many times each month you pay your bill. Instead, on-time payments and credit card utilization is important. The reported balance on your credit card is used to determine your debt-to-credit limit ratio, also known as utilization.
This makes up 30% of your FICO score so it’s important to avoid high utilization on any of your credit cards.
When your credit card issuer reports the balance, it’s usually the amount on your last statement. Rather than paying your bill a few times a month, it’s more important to focus on when you pay the bill.
The Best Time to Pay Your Bill
The statement date on your credit card is very important, so make a note of this date. The amount reported on the statement date is usually what gets reported to the credit bureaus each month. Want to have a smaller balance reported to boost your credit score?
Rather than simply paying by the due date, pay down your balance before the statement date. Don’t have the balance completely paid off on your statement date, or your credit file will show a $0 balance, which makes it seem like the card hasn’t even been used.
Important: To boost your credit score by timing your payments, remember that the statement date and due date are two completely separate matters. You need to make sure your outstanding balance is paid in full before the due date to avoid interest, late fees and a ding to your credit, but you also want to have a small balance on the statement date so it gets reported to the credit bureaus.
How to Get the Biggest Credit Score Boost
To see the biggest benefit, make sure one of your credit cards reports with no more than 9% of the credit limit utilized. All remaining credit cards should report with a $0 balance. This way, your debt-to-credit limit ratio, or utilization, is low enough to help you without making it appear that you don’t use your card at all.
Confused? Here’s the Short Version
You want your credit card to report with a very small balance by timing your payment with the statement date. Let’s say your due date is the 12th and your statement date is the 15th. On the 15th, make sure you have a small balance on your credit card (9% or less of the credit limit) and then pay it off in full soon after.
It isn’t necessary to pay interest or carry your balance to the next month to boost your credit score. Simply make sure you have a balance between 2% and 9% of your credit limit on that statement date then pay it off right after. This way, your credit file will show that the card is used but you aren’t anywhere near your credit limit.
So, why is this important? If you’re trying to increase your credit score to get a new loan, this method can give you a substantial boost to help you get approved. It can also be used to increase your credit score enough to help you qualify for a better interest rate. If you practice this method month after month, you’ll also be keeping your credit score at its highest possible limit and slowly improving your credit over time.