Q: John, I was reading a couple of your articles and I have a question.I just opened a credit card with a pretty low credit limit, $2,000. I know I need low credit card utilization or it will hurt my score. Is it okay for me to charge $600 or less to the card, pay it back immediately, and then charge $600 or less to the card again in the same month, or will that hurt my credit score?”
A: Wow, what a complicated strategy, and completely unneeded. First off, I applaud you for taking the time to understand how credit card utilization works and caring about your credit scores. Being responsible about those things will pay dividends.
The question you’re really asking me is what balance is going to be reported to the credit bureaus by your credit card issuers? The answer, my friend, is simple. The balance that’s going to show up is going to be the balance from your most recent statement.
The balance on your statement is a combination of your existing balance, new charges, fees, credits and payments. When you combine all of those things you get your statement balance. If after all of your actions you end up with a $600 balance on your statement that’s what will end up on your credit report.
Credit scores can’t see behind the scenes to know how that $600 came to be. All they know is that your balance is $600 as of the statement closing date. So, that’s the figure used to determine your credit card utilization.
We’ve just identified a strategy for using your card but always having a $0 statement balance. All you have to do is pay it online before the statement closing date, which is different than the due date. Your statement close date is likely going to be 21 days before your due date. You can go online and see the exact time frame. If you pay it off by the statement close date your credit reports will always show a $0 balance. But, you don’t get the same benefit of the full grace period…if that sort of thing is important to you.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.