A couple of weeks ago, I dueted a TikTok video with tips about exactly when to pay your credit card to boost your credit, and a TON of people watched it and had great questions!
That’s why today I'm gonna cover everything you need to know to boost your credit scores by paying your credit card bills strategically!
Years ago, when I was in show business, I would have such long gaps between gigs, that I basically lived on credit cards. My cards were always maxed out. And if I did have any available funds on one card, I would get a cash advance on it to pay towards my other cards… and I got deeper and deeper in debt. At one point I was over $200,000 in debt. I was drowning in debt. And when I did have a gig, even if it was a big gig, all that money would go to pay just the minimum payments. And there was never anything left, there was no way to get ahead, and my credit score really suffered. Because back then, I didn’t know any better. So I was caught in their trap.
But now, after learning so much about credit, and helping so many thousands of people to improve their credit. I see all the ways that I screwed up. And my biggest mistake back then was not understanding exactly how credit cards work. Now I know how to game the system to boost your score, even if you have credit card debt… and that’s what I want to share with you today.
Let’s start with the basics…
Your credit card bill, or credit card statement, is a snapshot of your credit usage. It shows your transactions, balance, and due date. Paying your credit card bill on time is important for avoiding late fees, saving money on interest, and maintaining a good credit standing. But did you know that the actual timing of your payments can also greatly impact your credit score?
That's right! When you pay your credit card bills strategically, you improve your Payment History and Credit Utilization ratio, which together make up 2/3rds of your credit score. That means how you handle paying your credit card bills impacts your score more than any other factors, and today I’m gonna break down exactly how to do it to get the maximum score.
HERE'S HOW THIS RELATES TO US…
For those new to the world of Credit Repair, there are five main factors that determine a credit score.
35% is PAYMENT HISTORY. Whether you pay on time, late, or miss payments.
30% is CREDIT UTILIZATION. This is the ratio of how much credit you have available and how much you are using. For example, if you have a credit card with a $10,000 limit and you’re carrying a balance of $9,000, your credit utilization ratio is 90%, which is very high and can hurt your score.
15% is CREDIT HISTORY, 10% is CREDIT MIX, and the last 10% is determined by recently opened NEW CREDIT accounts.
This means that over half of credit scores are determined by your PAYMENT HISTORY and CREDIT UTILIZATION alone.
So, the biggest improvement you can make is by strategizing exactly when to pay, how much to pay, and to never ever miss a payment.
When and how much you pay will vary depending on your situation, but what's not negotiable is missing payments. You must never ever miss a payment.
HERE'S THE THING TO REMEMBER…
Credit cards can be a really useful tool to boost credit or even a necessity for some people, but you have to be REALLY careful with them. It's way too easy to slip into bad debt, like I had, if you use your cards the wrong way.
If you struggle with debt management, these tips might not be for you.
For example, in my case, I was in such bad shape financially, that I actually stopped using credit cards altogether. I switched to only using a debit card and only spending money that I actually had. And I stopped using cards cold turkey. The first month was really hard, but after a few months it got easier. And then finally and very slowly I was able to slowly dig myself out of that tremendous debt. And I still don’t use credit cards because I never want to be trapped by them again. But I keep all my long time credit card accounts open, and that improves my credit score.
But for those of you who want credit cards,, or already have them and really need to use them, it's your job as a Credit Hero to understand how to get the most benefit by paying them strategically!
HERE’S WHY THIS IS IMPORTANT…
Overall, the only bad time to pay off your credit card balance is after the payment is due.
This can come with a lot of negative effects. Your credit score can drop, but you’ll also have to pay late fees and interest.
And paying more than you have to is never a good idea.
But if you’re paying your balances in full every single month before you get your credit card bill, the Credit Bureaus might not see that you are actually using this credit which really doesn’t do much for your credit score.
So, when exactly should you pay for your credit card bill?
HERE’S WHAT YOU NEED TO KNOW…
The key to boosting credit scores by paying bills strategically is understanding when your credit information is reported to the credit bureaus.
There are two important dates on every credit card statement - The statement date and the due date.
They may sound similar, but there are some big differences you need to be aware of.
The statement date is the last day of your billing cycle, when your statement balance is calculated and your credit card statement is generated. It usually occurs around 21 to 25 days before your payment due date. This is also the date when your credit card balance is reported to the Credit Bureaus.
The payment due date is the last day you can pay your credit card bill without incurring a late fee. You need to pay at least the minimum amount due by this date to avoid late fees.
Let me give you an example so you have a better understanding of how this all works.
You have that one credit card with a $10,000 limit and during one month, you go on a trip and spend $9,000.
If you wait until your credit card bill comes in the mail, your Credit Utilization rate of 90% will already be reported to the Credit Bureaus.
The higher your Credit Utilization is, the higher the risk you appear to be to lenders, and this will have a negative effect on your credit score.
Financial experts will tell you the ideal ratio for Credit Utilization is roughly 30% or less across all your credit accounts.
Still using this example, imagine instead that you made an early payment towards your $9,000 credit card balance, so by the time you get your credit card statement, you only have a $3,000 balance.
Once this information gets reported to the Credit Bureaus, it will show that you’re using the card, building a positive credit history, and have a 30% Credit Utilization rate.
This means lenders will see this behavior as you using the card responsibly, and it can really improve your credit score.
But you still need to make sure that you always pay your balance in full by the payment date so you don't get hit with potential late fees, or worse.
Now let's talk about another strategy to pay off your credit card which is AUTO PAYMENT.
Each person has different billing cycles so each situation will vary. But if you like a simple approach, rather than calculating your credit utilization and making your payments early, this is what I recommend.
Every single credit card company has an auto payment feature. They usually have two options make the minimum payment every time your balance is due or pay your balance in full whenever your new balance is due.
My suggestion is always to have an auto payment set 4 to 5 days before your balance is due and have it set to auto payments for the new balance.
This way you’ll never miss a late payment which will save you from the late fees and you will also just not be making the minimum payment so you're saving money by avoiding the interest.
IMPORTANT NOTE: if you do decide to have your balance paid in full every single month with auto payments do not make any extra payments. If you do, you may be overpaying and you’ll have a negative balance on your credit card which means that the credit card company has this cash sitting there until you spend it or ask for a check.
HERE’S MY FINAL POINT…
You're not just paying bills; you're managing your credit. These strategic, small steps lead to a boosted credit score and a better financial future. So mark your calendars and set your bill payment schedule!
I'LL END BY SAYING
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And if you'd like to change lives and grow your Credit Repair business, check out our Credit Hero Challenge!
It's an amazing program, and we've got another challenge starting in a few days, so grab your spot right now at CreditHeroChallenge.com!
So take care, Credit Hero!
And Keep Changing Lives!