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Boost your credit score by changing your payment date
August 17, 2017
Your credit score can be a very puzzling number, made from a complex algorithm fueled by all kinds of data linked to your credit profile. While a lot of the data from your credit history remains the same month after month, your score isn't a static or fixed measurement. It is a constant changing number based on the current snapshot of time and how your credit criteria fits into that magic algorithm that creates your score.
If you follow your credit reasonably close, you may already be aware of the main factors that create your score, which include but aren't limited to; on-time / late payments, derogatory accounts, paid debt, number of open loans / trade-lines, inquiries.
One of the largest factors in your score makeup is your utilization of open tradelines - such as credit cards or revolving lines of credit. Having your utilization above 60% can be detrimental to your score in a fairly significant way and experts say it is best to use under 30% of your open available credit to avoid negative impacts on your credit score.
For example, lowering your credit utilization from above 60% to under 20% can mean as much as a 50 or 60 point increase in credit score. The law of diminishing returns comes into play once you are under the healthy level of 25- 30%. This means the lower your utilization, the lower the impact on your score. Dropping your utilization from 15% down to 5% may only change your score by 5 or 10 points- but when applying for credit, every point can matter.
So at this point, you may be asking "how can I boost my credit score by simply changing the payment date?" Each one of your creditors reports your activity to the credit bureaus on different dates. Typically, this happens several days after the closing date, as reported on your statement. Take a look at your e-statements for each account and notate the closing date indicated on each statement. Make a list of each account and the closing date. Now the trick: Make your new payment date three days prior to the closing date - it's as simply as that!
How this works: Your creditors will be reporting a lower balance and / or paid item versus having a larger amount due. Paying it off and ceasing to use the account isn't always best either. Keeping your account active will keep the creditor happy since you are using the account (inactivity could result in a credit-line decrease if it goes dormant). Even if you aren't fully paying off each balance every month, paying before the cycle close date will lower your utilization on that 'snapshot of credit' when it is reported, thus giving you a higher score.
Let's take a look at an example below:
Credit limit: $1000
Balance: $425 (used each month to buy gas and groceries)
Amount paid: $425
Payment due date: 26th
Statement closing date: 12th
In the above example, if this card was used every month to buy gas and groceries and paid off on the 20th, well before the due date, the creditor would report to the bureaus a 42.5% utilization of credit. Had this bill been paid on the 9th (typically it takes 1-3 days to process the payment), the balance would have been reported as zero, paid - and the utilization of credit would be zero.
If all other factors the same, this particular example could see a fluctuation of approximately 20 points just by moving the payment date to come before the statement period closes. When multiple cards come into play, you can easily see how the timing of your payment can influence your reported utilization and affect your credit in a big way.
When applying for credit, utilization can not only make the difference between denial or approval, but also the amount you will pay for said credit. If your utilization is too high, creditors may simply say no altogether. If credit is given, the higher your utilization, the lower your score, thus the higher your rate and cost of credit. Use this simple tip to help boost your credit score into the next tier and pay less for your next loan!