Even if you have a good credit score, you may still want to find a way to inch that magical number higher, especially if you are in the market for an auto loan or a mortgage in the near future. Even at a 700, an extra twenty points or so could easily bump you into a lender’s higher credit tier and net you a lower interest rate.
So, how do you get an increase when you’re already in the “good” range?
The Trick Is …
As you may already know, one of the largest factors in determining your credit scores is your credit utilization ratio, or how much debt you have compared to your credit limits. Paying attention to this aspect of your scores just might be the ticket.
No, that doesn’t mean it’s essential to carry a zero balance to have a good credit utilization ratio. In fact, credit experts recommend keeping your debt level at 30%, ideally 10%, of your total credit limit. So, how do you get your ratio in that sweet spot?
One way — often the most commonly noted way — is to only charge up to that amount before paying down your balance.
But here’s the secret: the timing of your credit card payments.
The Importance of Timing
Typically, even if you’re paying your balance every month by or on the due date, the balance shown on the statement date (also called the closing date) is the amount reported to the credit bureaus for that month, Barry Paperno, a credit expert who blogs at Speaking of Credit, said. When your credit scores are pulled, that balance, even if you have since paid it off, will still be reported and can affect your credit utilization. By adjusting when you make your payments, you’ll have more control over what effect your spending has on your credit.
Beyond that, Jeff Richardson, spokesperson for VantageScore Solutions, said that credit bureaus now compile data over time, in addition to just the snapshot.
“This new kind of data shows when you paid and how much in addition to whether it was on time so they can see if you’re a revolver (debt carrier) or a transactor (someone who pays balances off entirely),” Richardson said.
Credit scores don’t generally take that data into consideration right now. Still, “a lender or credit issuer for a mortgage or an auto loan can pull that data and use it to reward the transactors with better loan terms.” (Note: This isn’t always done, but is possible.)
As such, you may want to pay your credit card charges off as you go or at least before your credit card statement’s closing date (more on this below).
Figuring Out When to Pay
Take a look at your last credit card statement. If your statement date is November 10, the balance on that date is likely what was reported to the credit bureaus, regardless of the payment due date. Keep this in mind as you make your payments, since it will give you a better idea of what your reports are showing as your utilization.
“To reduce that balance reported or avoid having it reported at all, don’t wait for your next statement to come,” Paperno recommended. “Instead, go online to see the up-to-date balance and you’ll know exactly what to pay before the closing date.”
What Kind of Credit Score Bump Might You See?
There certainly isn’t a guarantee that you’ll see an increase because of this payment adjustment. However, Paperno said he saw about a ten-point score difference on his already high scores, just about a month after implementing this change. Maybe ten points doesn’t seem like much, but it could bump you from a prime credit score to a super prime credit score, possibly saving you thousands of dollars in interest payments.
“This is one of the few things you can really control about credit scores so it’s worth it to take advantage of it if you can,” Paperno said.
To see how your habits are affecting your credit scores, you can take a look at two of your credit scores for free, updated every 14 days, on Credit.com.