Does it make any difference?

[Tapped Out]

What is the name of your state? MA

Hi,

We are looking to lease/buy a new vehicle in the next few months. We pay off our credit card balances every month. Our main card's balance, though, can get quite high (more than a quater/third of the limit). Would it make sense to pay it off before it's due so that what they report to the credit agencies is a zero balance? Would that affect our credit score enough to make it worth it? I think that we are on the edge of getting into that top bracket... Thanks!

 

[Debt Guy]

I'm not sure what you propose would necessarily influence your credit score as the scoring model is based on history more so than just a current snapshot.

In any event, the scoring model rewards a utilization rate of 20% or less.

If you want to maximize your score keep the outstanding balance at 20% or less of the credit limit and pay your bill on time every time without fail.

 

[Tapped Out]

Thank you for your input. We do pay our bills in full and on time, every time. What I am hearing you say is that we should keep our utilization at (or below) 20% of our credit limit. How long do you think that we would need to do that in order to influence our credit score? Would a few months be sufficient to bump it up a bit? Thanks again.

 

[Tapped Out]

I realized after I had already posted that I neglected to explicitly say that we were considering paying off our balances in full before the billing cycle ended so that they would report a zero balance to the credit agencies. Would that do it, and how long would it take to see a change?

 

[efflandt]

They are not likely to report more often than monthly. And it is not so much how much of your limit you are using on one card. It is more a matter of how much of your available aggregate credit you are using (the total limit of all your cards), and more importantly, payment history (whether any payments have been 30 or more days late).

You can check your credit report from each of the 3 main agencies once per year free at https://www.annualcreditreport.com/ or the link to that from http://www.ftc.gov/

Almost nobody gives a free credit "score". Although, WaMu posts my TransUnion score when I log into my home loan/checking account (as a link to sell me something). When I refied in 2005 w/$5000 balance on a credit card it was 771, and now it is 801 with another $4000 balance I am paying off at 0%.

 

[Ladynred]

And it is not so much how much of your limit you are using on one card.

That's not entirely true. It DOES matter, and to build your credit score, your IDEAL utilization needs to be 15% or less, not 20, 10% would be even better.