Have you heard these words spoken before? “I use my credit card instead of my debit card because my credit card accumulates reward points. I pay it off every month so what’s the difference?” It SEEMS like a pretty good plan doesn’t it? Turns out there may be a price to pay for those tempting rewards points.
Not only do credit cards cost money to have; annual fees, interest rate charges etc. but they also may ding your overall credit score. Of course you say; that’s the nature of the beast! Fair. But you may not be fully aware of the creature with which you tangle.
For those who heavily use a rewards credit card rather than swiping a debit card to accumulate those appealing awards points typically run a high balance on their accounts. Though the balance may be paid on time and in full, your credit score could be suffering.
Here is where the unfair tradeoff takes place. You receive rewards points and avoid interest fees by paying your balance on time so you should have a fantastic credit score; the credit reporting agencies don’t see it that way. Every lender and credit card company must report the standings of their customers to the three credit bureaus but they don’t all do so on the same schedule, and this is where your score can take the hit.
According to Creditcards.com these reporting cycles are all over the board. For example they say that Wells Fargo, Citi and American Express report the amount reflected on the consumers finalized monthly statement, whereas Chase reports the balance as of the 13th or 14th of each month. Needless to say the close of your billing cycle may not coincide with the credit companies reporting cycles; meaning you may show a high balance before you even have the opportunity to pay it off. A high balance will always, always, always damage your score.
Don’t worry though it’s not hopeless. Armed with this information you can learn to work the complicated system to your advantage. Here’s what you can do:
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Pay your balance down to 30% or less of your available credit line two or three times a month. By doing this you’ll likely be able to show a universally acceptable credit balance at whatever point your credit company snaps that current shot of your information to send off to the credit bureaus.
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Proactively call and ask your credit card company when they report to the bureaus. If you are able to procure a solid answer make your payment a week or so before that date. No one says you have to wait to pay your balance until the due date!
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This one can be dangerous and in some cases a bit of a long shot but you may want to consider asking your card issuer for a credit limit increase. This would give you more of a distance between your balance and your limit reported each cycle. It is important though that this new limit become only your credit score buffer and not your exciting new license to spend more each month.