How card companies report credit utilization to bureaus
Let's Talk Credit
Dear Let's Talk Credit,
How do credit card companies report credit utilization to the
credit bureaus? Do they report just the monthly statement balance or total
transactions? I currently go over the 10 percent credit utilization on one of
my cards each month, but I make a separate payment before the statement closing
date to get my statement balance under that 10 percent. Will this strategy
work? If not, how long does high credit utilization affect your credit score
(i.e. month to month, three-month period, two years, etc.)? Thanks. -- Steve
Card issuers report to the credit bureaus in different ways.
Some report specific monthly payment information along with account balance and
credit limit; others do not. The biggest issue with credit utilization and
credit scores is that your score is based on a snapshot of your credit report
on a given day. If the snapshot of your credit report is taken before you
make credit card payments for the month, you would be over the ideal
utilization rate of 10 percent.
Your FICO credit score calculates credit utilization as 30
percent of your overall credit score. As with all scoring, how much this one
category can affect your score depends on the other contents of your
credit report. For example, if you are doing everything else right, such as
paying what you owe on time and as agreed every month, the difference between
10 percent credit utilization and 20 percent utilization is not likely to drop
your score by much.
You will want your credit score to be at its highest level
when applying for new credit, leasing a home, applying for new employment or
purchasing insurance. If you want to be sure that your credit utilization is at
or below 10 percent when the snapshot of your credit is taken, you can contact
your card issuers and ask what day reports are made to the credit bureaus.
Then, you can be sure to make payments on your accounts before the reporting
day. Another option is to refrain from using your cards for 30 days leading up
to the event where you know your credit score/report will be reviewed.
Keep in mind that the scoring models take into account your
total credit limit across all credit card accounts as well as each individual
account. Your credit report and credit score are usually an accurate
illustration of how you are managing your financial life. If you use only the
credit you need and can afford to pay on time and as agreed, your credit score
will reflect that you are a good risk.
Let's keep talking!
See related: Credit limit tricks: Keep your score high while still using your card, FICO's 5 factors: Components of a credit score
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Published: May 30, 2013