When you are rebuilding credit it’s important to be careful with making your payments on time above all, but there are some tricks to credit card payments to be aware of. This applies if you have a credit card with a low available credit ie: $300 as much as it does one with a $10,000 limit. Unfortunately (read further).
This tip is what is known as the “Credit Card Sweep Method” – and it relies on getting to know your Statement Closing Date (on each statement) and paying down or reducing your balances to within 1-10% within a few days of when your statement generates.
Paying too Early:
Credit card companies typically report data to Equifax once per billing cycle (often at the end of your billing cycle). A common mistake some people make when rebuilding credit is that they will pay off their balance every time they make a charge – within a few days. However, if that balance is consistently zero when the information is captured on their Credit Bureau it is possible your credit file would show “no recent usage”, which could lower your Score by 10-20 points (crazy eh?). You want to show activity. So, what do you do?
Pay down your balance to below 30%:
The magic number is below 30%. You want to show a balance of than 30% of your available credit when it reports to Equifax. So, go ahead and make extra payments during the month (by the way – it doesn’t hurt if you do this) but leave your balance at 1-10% (or 30% max) of your available credit limit a few days before your Statement Closing Date (or always). Now you’re playing their game.
0% Interest:
Do yourself a huge favour. When you receive your credit card statement: If at all possible – pay it in full. This way you won’t pay any interest. In fact you’ll have used the credit card company’s money for free. Better yet – pay in full, but get Cash Rewards Credit Cards and make money while not paying any interest. Ask me if you want to know what I use. I’m frugal and don’t pay any annual fees. Likewise – don’t use overdraft on your checking account either. They are typically at horrible interest rates.
When you receive your Statement:
**Caution: If you made a few payments during the month, don’t think you’ve made your “minimum” payment even if some of those payments were for the minimum or more. Unfortunately if you don’t make a payment within a certain “window” – they may not consider the other payments as part of your minimum payment and they’ll mark your payment as past due.
Must do: Pay at least the minimum if not the full amount that shows on your statement before the due date (earlier is fine too).
** Pro Tip: I recommend setting up automatic payments of your minimum or full balance, so you never have to worry about missing a payment. This only works if you know the account that will pay the balance will have enough funds.
The Game:
Especially when you have a new Secured Credit card with a low balance like $300, this game can feel silly, but the fact remains that if you have a Balance of $250 and pay it in full, Equifax will show your credit utilization as 75%, and – they want to see it be below 30%, or under $100.
Play the game and you’ll not only learn to watch your balance and get in good habits – but you’ll maximize your credit score just as much as you would if you had a $10,000 limit.
If it’s frustrating – Ask for a credit limit increase after about 6 months on-time payments, or if it’s a secured card arrange a higher security deposit so that your Available Balance is higher.
See Also: Improve Your Credit Score: A Comprehensive Guide:
