Okay guys! This is one of my favorite pieces of information, tip, trick loophole, whatever you want to call it! When it comes to your credit utilization and your credit score, there is only one day that matters.
We already know that - 1. We have to use credit cards to have a good credit score 2. 35% of our score is based on on-time payments for accounts like credit cards, auto loans, mortgages, etc. 3. 30% of our score is based on the utilization from our credit cards
Alright, knowing that – how do we maximize our points in those two areas, use credit to our advantage and take into account the REALITY of spending.
The #1 goal is to pay our credit card balances on time. You get your statement and make sure to pay it on or before the due date. Easy right?
Our second goal is to keep our utilization low. Word on the street is utilization should be under 30%. Generally, the lower your utilization = the higher your credit score.
The issue is if you are getting all the rewards you can out of your credit cards, that means your most likely are not using less than 30%. That would limit your rewards.
THE TRICK! The credit card companies only report your balances to the credit bureaus once a month. Your balance on this random day that they choose, is the ONE day that matters when it comes to your credit score! This means that a week before the report date, your utilization could be at 99%. As long as on the day they report, it’s under 30% you are GOLDEN. Your credit score looks amazing and no one except you and your bank knows that you were just maxed out.
WHAT MAKES IT TRICKY? The problem is all the credit card companies report your balances different days. Take out some time to call each one to figure out the day that they report. And, you want to check each one at least twice because you may get different information. Once you figure it out, check your report monthly to see which balances were reported and make sure the day you were told matches.
THE BENEFIT? If you have high enough limits and low enough balances all throughout the month, this may not be important to you. If this isn’t your case it is super important to figure these dates out as it allows you to use your credit cards and maximize the cash back and mileage points from them.
REMEMBER!! Even with this trick it is important to remember that if we do not have the cash, money in our checking account, or a guaranteed way to get it within 30 days – DO NOT put it on your credit card. Emergencies and smart investments are an exception.
This is how you determine your utilization:
Total Balances / Total Credit Limits * 100
- Your credit card balances are $0, $222, and $1800.
- Your credit card limits are $300, $300, and 7,000.
Total Balances ($2,022) / Total Credit Limits ($7,600) * 100 = Your Utilization (26.6%)