Skip NavigationOscar Wong | Moment | Getty Images
When it comes to managing my credit, I’ve always kept things very simple.
When I graduated college, I had three student loans, which I set to autopay on the same day. Once I’d lived for a few years as an adult with a job and regular bills, and was certain that I could avoid overspending, I added a credit card which I paid off each month in full. I recently opened a second card, which my fiance and I both use.
It should come as no surprise, then, that I have good credit, says Alisa Glutz, a mortgage loan officer and creator of credit education platform Color My Credit. In general, she says having at least one installment loan, like a mortgage, auto loan or student loan, as well as two credit cards, used strategically, is the formula for a good score.
But when I recently logged into my credit card account and checked a version of my FICO score — just one of many scoring models lenders use — my score was lower than I expected. One reason is I still have some relatively new credit; the last account I opened is only 11 months old. But another reason, Glutz points out, has to do with how I manage my cards.
For years, I’ve focused only on paying down my cards before they came due. But card issuers often furnish your account data to credit bureaus on a different date, Glutz says: the day your statement ends.
“That’s the one day of the month we have to look for, and no one gets it right because we pay off our statement when it arrives.”
Of course, she adds, I still need to maintain good credit hygiene. A history of on-time payments, the length of my credit history and the mix of credit accounts I have all contribute to my score, according to Experian. But here’s why Glutz says being a little more strategic about how I pay down and manage spending on my cards may boost my score.
Why paying attention to the statement date matters
Look, I don’t just care about my credit score because I’m the type of former straight-A student who is into that sort of thing. Credit scores are one measure lenders look at to assess credit risk and help determine the rate you get on all sorts of loans. That means, if you want to finance a car or take out a personal loan or buy a house, your score matters.
Consider a hypothetical example from the Consumer Financial Protection Bureau, which assumes you’re looking to buy a $400,000 home with a 10% down payment and a 30-year fixed-rate mortgage. With a credit score of 625 (a FICO scoring model popular among mortgage lenders goes to 850) the agency’s example says you could get you an interest rate as high as 8.875% while a 700 score could see you pay as little as 5.875%. Over the life of the loan, that could amount to a difference of more than $264,000.
“If you’re hoping to buy a house, think about a good credit score like a coupon,” Glutz says. “If you have a good enough score, it’s going to save you thousands of dollars.”
So what’s wrong with paying off my card on the due date every month? Nothing, says Glutz, but it ignores the mechanics of how your spending is reported and how credit scores work. A major component of your score is your utilization — essentially, how much of your available credit you use. You may think that paying off your debt on the due date would mean that your card company would report a $0 balance to the credit bureaus, but that’s not the case, Glutz says.
Rather, card companies typically report your balance as of the date your statement ends.
For many credit card holders, the next statement period ends a few days after the card’s due date. The most recent statement for one of my cards, for instance, ended on September 19. The bill for the previous month came due on September 16.
My instinct — and the instinct among many borrowers, says Glutz — is to use the period immediately after my card is paid off to charge major expenses. “It’s when you feel the richest — right after you’ve paid off your card,” she says. “Wanna go to dinner? It’s on me!”
But the balance you build between the due date and the statement closing date can be the one your credit issuer reports to the bureaus, Glutz says.
If you’re looking to boost your score, then, you’ll have to be a little strategic, she says. She recommends flagging each of your cards’ due dates and statement closing dates in your calendar and issuing a “no-spend zone” on those cards during those periods. She recommends spending practically nothing — between $1 and $20 — on the relevant card during that period.
Otherwise, she says, you’re free to spend as you see fit — credit scoring models using balances reported to bureaus won’t know what you’re doing in the 3 weeks or so after your statement closes, as long as you pay down the balance and keep spending modest during that key window.
“Between the due date and the statement closing date, that’s when you’re controlling the narrative,” she says. “You’re controlling what it’s going to show up on the paper.”
VIDEO08:3644-year-old brings in $251,000 a year with 3 jobs in the Bay AreaMillennial Money
