Many people use credit cards for rewards and simply pay them off when the bill comes. While this is a way to be sure you pay no interest, it could be holding back your credit score. The reason? Credit Utilization and the end of a billing cycle. Today we will talk about how the due date on your credit card is probably not the day you want to pay it in full.
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hey Dustin Tim it's financial advisor with jazz wealth managers I hope you'll check us out at jazz welcome we're fiduciary financial advisors we manage our own portfolios we're about as transparent as you can be and recently SEC registered so we are so excited about that you can look all of our information up on the SEC website well one of the things that you can't look up today is a little trick that people tend to fall for and it has to do with your credit utilization rate and many people say Dustin I use my credit card but I pay it off every month so I never pay any interest I don't carry a balance and so I have great credit I'm getting my dough straight everything's good but there's one thing we want to add to that see your credit score breaks down in a number of different ways I'm sort of a geek about this stuff I love you know kind of looking into this but thirty percent of your credit score is your credit utilization rate and really simply that just means how much credit are you using relative to how much you have available so if you had a thousand dollar credit limit for some reason and you spent five hundred you would have five hundred dollars left over to spend meaning you would have a fifty percent utilization rate you had a thousand you used fifty percent of it and that's your credit utilization rate and a lot of people go yeah but I pay it off every month so shouldn't I be getting a huge bump in my score because of that well fifteen percent of it is your payment history right oh sorry and then 35 percent of it is the length of time that you had history right sorry for the handwriting there I know that's sort of bad so 35 percent is your payment history sorry about that and the 15 percent is your length like your credit history length right so we did this backwards this is your history length so if you had it for 10 years have you had credit for 5 years whatever it may be 35 percent is how good are you at making your payments over the lifetime of your credit history now here's the thing if you pay your credit card off in full at the end of every month you may notice hey I'm not getting a great bump in my credit score and that's because you're not paying interest on your credit card because you make it on the due date or just before right so you're required to pay your credit card off by the due date or you'll pay interest the interest starts accruing fair is fair okay now there's something called the billing date or a billing cycle right when that billing cycle ends that's when the credit the credit card starts telling the credit agency how much you have used in your credit here's the thing the billing cycle can come can end before the due date so you think I'm gonna pay my credit card off on the due date every single month no problem that's fine you're not paying any interest but your credit report is showing credit utilization of some percentage whatever it is now of course you know when your due date is the credit card company tells you when your due date is they tell you when the billing cycle ends but they do not tell you when they report to the agency is it the day the billing cycle ends is it the next day two days five days later what is it so we don't actually know when they report we know this date we know this date but the reporting date is the one that really nobody will tell you I tried asking Capital One discover and no that was at Capital One and discovered they won't say anything they don't publish that you can't find it so in reality if you're trying to pay no interest on your credit cards great you do want to make your payment for the due date but you probably want to pay it off considerably earlier pretend that your due date is ten days before that or fifteen days before that so that when they report to the credit agency this 30% of your credit score is now showing zero they had a thousand that they could spend we don't show any money that they've spent and so they have a zero credit utilization rate that might help your that might help you it's for in the long run hey I'm going to show you a quick promo for an open house we're doing here on Wednesday hope you'll join us for that thank you for watching if we help you in some way hit the subscribe button and we'll see