Paying Off Credit Cards Early

I read on the internet that your fico score can actually go down if you pay your credit card balance in full every month.

Someone suggested to pay part of the balance a few days before the statement cut off date and then the rest of the balance right after to avoid the score going down. Is this true?

I have been paying the full balance before the cut off date and hoping a 0 balance is being reported to the credit agencies.

I’m confused! Please clarify the best way to raise your score in a scenario like this.

Cecilia

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Hi Cecilia,

Here’s a scenario.  A credit card with a $500 credit limit is run up to $450 each month and paid off after the credit card statement arrives.  Each and every month, the credit card is run up to $450 and paid in full after the statement arrives.  The credit card company reports to the credit bureau once every thirty days.  This will be scored similarly to a consumer who runs the balance up to $450 in the first month and then makes minimum payments each month.  In other words, this will score poorly for Amounts Owed and its corresponding credit utilization ratio. 

If the same consumer in the scenario above paid the account off prior to the statement arrival date and prior to the credit card company’s monthly reporting to the credit bureau/s, then the same consumer above would score well for the Amounts Owed category, as it would reflect a zero balance owed on the report.

Here’s another scenario.  A credit card with a $5,000 credit limit is run up to a $200 balance.  Whether the account was paid off prior to the statement or after the statement arrived, either way it would not have a significant impact on credit scoring.

The above scenarios are assuming the credit has already been established.  If you have a new credit card, then you may want to carry a balance for a couple of months prior to paying it off entirely.

Thanks for the questions and hope this helps.

Paul