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I am trying to rebuild my credit following a bankruptcy. I have attained a secured credit card. Is it best to pay any balance before I receive a statement? Or should I wait until I receive the statement and then pay?

Brythan
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Jeff Carter
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2 Answers2

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It's always best to pay most of the balance off before the statement closes and leave a small balance to report in order to show activity (on one card - additional cards should show no balance)). But TBH, at this point its far more important to simply keep the account in good standing while your credit recovers.

Norm
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A good credit score considers multiple factors. Usually, the two most heavily weighted factors are number of on-time payments, and percentage of available credit used. So for a good score you want to make sure you never miss any payments. The second factor requires a little more finesse. 0% utilization is actually less helpful than say 1-4% utilization, because to the scoring model it looks as though you're not even using your available credit (so there's no way to tell if you're using it "responsibly"). The utilization percentage is calculated based on the amount shown on your statement compared to your limit.

For example, if you have a $5000 limit and you have used $1000 -

  • If you pay in full before receiving your statement, your utilization will be 0%
  • If you wait for your statement, then pay in full, your utilization will be 20%
  • If you pay $900 now, wait for a statement balance of $100, then pay it off in full, your utilization will be 2%

However much you decide to let show up on your statement, be sure to pay off all of it during the grace period, so you don't end up paying any interest.

The other thing to consider is whether you actually need a good credit score. If you think you'll be applying for a mortgage in the future, then improving your score is a good idea. However, if this is less likely, then it may be financially safer to forget about your score and just keep credit use to a minimum or eliminate it entirely, to reduce the risk of ending up underwater again.

CactusCake
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  • Thanks for the great answer @CactusCake. Clarification, now my question only applies only to people with absolutely no credit problems: is it a true fact that it is completely pointless to pay, before, receiving a statement? Naturally, without question you should entirely pay all of the statement, instantly upon receiving it. But is it perfectly true that paying it all before receiving a statement achieves absolutely nothing - there are no "good marks" for being an "early payer" ! is that a fact?? Thanks! – Fattie Mar 30 '18 at 15:15
  • @Fattie, it depends on when you obtain the score. If your statement generates with you having used 99% of your available credit, your score will dip, but as soon as you pay it off/down the score will go back up. Since your card company is likely to only report your balance to bureaus once per month, you won't see that change in tools like the "free FICO score" they put on your statement or online account. I'm not sure if the bureaus poll your lenders for updated balances when someone requests a hard credit check; if they do, then it only matters what your utilization is on that specific day. – CactusCake Mar 30 '18 at 15:23
  • ah I see, so indeed there COULD BE obscure situations where it's better to pay it down in the "middle" of the month; i get you. Thanks ! – Fattie Mar 30 '18 at 15:32
  • @Fattie - lenders will typically report balances on the day the statement closes, and the statement balance is usually what gets reported. There are some lenders that will report a zero balance any time it occurs. The thing to keep in mind is that the Utilization portion of your scores has no "memory" - what was reported last month has no lasting effect on this months scores. That's why many people say its pointless to micromanage balances to keep your score peaked at all times. You can correct it and peak your scores at any particular time in preparation for a credit application. – Norm Mar 30 '18 at 21:40
  • AHHHH! fascinating !!! understood! – Fattie Mar 30 '18 at 22:01