Building good credit can be annoyingly tedious in that it can take years to get right — and it only takes one wrong move to destroy. Other than doing everything you can to avoid a huge blow to your credit, like a late payment or debt collection account, the best way to build a good credit score is wait for all your good behavior, like making on-time loan payments, to add up to a long, healthy credit history.
For those of you who aren’t so patient, there are some things you can do for short-term results. Here’s how your credit card can be the key to rapid change in your credit score.
How Credit Cards Affect Your Credit
One of the biggest factors in determining credit scores is something called your credit utilization rate (how much of your available credit you’re using). To have a good credit score, credit scoring companies recommend you keep the amount of debt you owe collectively and on individual cards below 30%, or even under 10%, of your credit limits if you can.
But really, the ideal credit utilization rate is 0%, according to a recent post from credit scoring company VantageScore. Of course, if you don’t use your credit cards, you can achieve that 0% utilization rate, but you also run the risk of your credit card issuer closing your account because of inactivity. Don’t be discouraged: There’s a way around that.
The Trick: How to Keep Your Credit Utilization Rate at Zero
Your credit card issuers may not tell you exactly when they report your account activity to the credit bureaus, but VantageScore says “credit card issuers generally report your statement balance to the credit reporting companies.” If that’s the case, you would need your statement balance on each credit card to be $0 to have the lowest-possible credit utilization rate. To do that, you would need to make your credit card payments before your statement closing date.
If you can pay your credit card bills in full by the due date, that might not be such a tall order. (You can find your statement closing date listed on your statement or on your credit card account summary.) By paying your credit card before the statement closing date as opposed to its due date, your statement balance should be reported as $0.
“[A] zero balance on your statement should soon equate to a zero balance on your credit reports, which is fantastic for your credit scores,” VantageScore says on its website.
Just make sure you can afford to employ a trick like this. Pay close attention to your credit card spending, your bank account balances and the timing of any other bills you need to pay. The last thing you want is to pay your credit card bill early for the sake of boosting your credit score only to leave you without enough money for a monthly loan payment, which could trigger late fees and a late-payment mark on your credit report. You can see how managing your credit card payments and other credit accounts affects your credit standing by getting a free credit report summary every 30 days on Credit.com.
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