I’ve been deep in the writing rabbit hole the past couple weeks. I wrote an article for the Daily Worth about failure that’s currently under edits. And not just hypothetical failure, but my own failure. I’ll keep you posted when it’s published. I hope it helps put some prospective and maybe some salve on any failures you’ve had.
Anyway, I wanted to explain something that maybe I haven’t been clear about…and it’s something that can raise your lower your score 20-160 points, depending on where you’re at.
Now, as with most things, if you’re credit is above a 740, you don’t have to worry about this.
But, if you’re trying to build your credit or applying for a mortgage or any kind of new credit soon, you want the highest score possible. You have have heard me say things like “keep your balances at 10-30%, and the lower the better right before a mortgage.”
It’s all true. But here is how it really looks.
Let’s say you have a Capital One card with a $1500 limit. I’m using them as an example because their Platinum card is one of the easiest cards to get when you’re just starting out or getting back on your feet, and I have a Capital One card and I have grilled them endlessly on how this works. (Remember, I’m a nerd). They have always been amazing to deal with, by the way.
You charge $450 a month, which is the 30% max of $1500. You pay it on time, every month on the 14th (the automatic date for payment due dates. You can request another one if that works better for you.). You think you’re golden. But let’s say because of how your automatic bills time with the payment cycle or you just like to use your card a lot or the balance is just high one month, or you had a lot post between you paid the last statement balance….. The actual balance on the day the statement closes is what gets reported to the credit bureaus. If your payment due date is the 14th with Capital One, your statement runs the 17th, and the balance on the 17th gets reported to the bureaus the 19th or 20th. So if you went a little over, or any of the examples above, what gets reported is what’s on your account the 17th, not that you paid in full on the 14th.
Another way to say this is…..the pay in full amount for the next month is what gets reported to the credit bureaus. If you’re trying to get the highest score and you’re in the range where this really matters, like 500-700, then make sure what’s getting reported to the bureaus is under 10%.
That doesn’t mean don’t use your cards or don’t maximize points. It means know how the game is played.
This can be the difference between 20-160 points on your score, no joke.
It’s just a game, and it’s important to know the rules, especially if you’re just starting out or getting back on your feet and you don’t have a ton of credit cards or available balance to spread out this 30% factor.
So pay your cards on time. Everyone knows that. Pay them in full. We all know that, and we are all in various states of getting there. But don’t let the statement balance be above 30%. 10% is even better.
This is especially important to note if you’re charging on your card a lot and paying it several times a month. I’ve got a client that got approved for a $500 Capital One Card. Her FICO 8 scores were in the low 500s and she was less than a year out of bankruptcy when she applied by the way. She charged often, but paid it off every week. About six weeks in, she called and got upgraded to a rewards card that gives her 1.5% cash back on purchases (and remember, none of these perks matter if you’re carrying a a balance). About eight weeks after she had the card, she applied for a credit line increase online and got bumped up to a $1500 limit.
This helps her score immensely. She can charge more and keep her balance ratios lower. Credit utilization makes up 30% of your score, and it’s the quickest way to boost your scores.
By the way, her scores jumped an average of 62 points by doing this. She’s going to keep her balance on statement date (the 17th) really low next month and let me know what that does for her. I’m guessing 30 points. Capital One doesn’t do a hard inquiry on your report when you ask for a credit line increase by the way. They just look at their internal records. That’s nice because any past mistakes don’t get looked at and it doesn’t ding your score. They are just looking at how well you’ve managed the account you have with them.
You can always call your credit card company and ask what day they report to the bureaus, just to be sure.
Awkward truth. Your credit score isn’t about how well you manage money. It’s about how well you manage credit. If you’re sitting in the 500’s or low 600’s, you are probably going to need a credit card you use on a regular basis to get your score closer to 700.
Hope that helps!