Pay as you charge to boost credit score

Making more than one monthly payment will keep credit utilization low

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Dear Credit Guy
I recently opened a credit card account with Capital One to help build my credit. I have a $300 credit line and use it more than I should, but I pay it off throughout the month. Will this lower my credit score, although I’m still paying it off? Also, I was thinking about getting a second credit card, but I’m thinking maybe it’s too soon, since I’m just starting out on building my credit up. – Morgan


Dear Morgan,
I’m glad to see you are trying to take a smart approach to building your credit score. It’s true that, especially at the beginning of the process of building your credit score, every step you take can make a difference.

First, I want to talk about the $300 card you have now and are using. You say you pay it off  “throughout the month,” so I think what you are doing is making more than one payment each month. This is very smart.

While it’s true you could theoretically charge up to $300 every month and wait until you receive your statement and pay the $300 by the due date with no interest, this can sometimes backfire on a consumer.

Every time your credit report and score is accessed, a credit “snapshot” is taken that reflects that specific moment in time. This means that if you have used up most or all of your available credit before you have made a payment, the credit utilization component of your score – the amount you have borrowed compared to your credit limit – will be high, causing your score to be lower.

This is true even if you never carry forward a balance to the next month. By making multiple payments throughout the month, you ensure that your utilization stays low.

  • A good rule of thumb is to always stay below about 25 percent of your credit limit, which means you should not charge more than about $75 at one time and you should make a payment before charging again.
  • A great way to make the most of this strategy is to immediately make a payment any time you use your card for a purchase. This could be of great benefit to you especially since you are new to credit and your limit is fairly low.
  • An added bonus is that you will never pay interest, and you will never find yourself in credit card debt.

Time to apply for a second card?
As for applying for another card, here are some things to keep in mind:

  • Your credit report will reflect new hard inquiries any time you apply for any type of credit, and your score may dip temporarily.
  • Creditors do not want to see multiple credit applications over a short period of time, so you probably should wait until you have had your current card for at least six months to a year.
  • When you decide the time is right to apply for another credit card, use the same strategy for using and paying off the new card. This will be the fastest way to boost your credit score, while keeping yourself out of debt.

Keep in mind that creditors like to see other types of credit, such as car loans and mortgages, on your credit report when they are making credit-granting decisions. Always making on-time payments to these other types of credit also will boost your score over time.

Take care of your credit!

See related: 3 ways to boost score with first low-limit card, Your second credit card: When it's wise to get one, when it's not

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Updated: 02-18-2019