Pay off your entire balance every week.
That’s the trick – bet you didn’t think I’d give it away straight off 🙂
Now that you have the answer you were looking for, let’s take a closer look at how I got there.
But first, a Disclaimer:
Ok I have to start off with an immediate caveat. This only works if you do not carry a balance on your credit cards. If you do have credit card debts you need to stop reading about “tricks” and start making actual changes in your life. Credit card debt is the worst. For some motivation check out this Mr Money Mustache article.
On to the trick
I wrote about how your credit score is calculated in my last post. In it we learned that something called “Credit Utilization” makes up 30% of your credit score! In brief, credit utilization is the percentage of available credit you are using at a given point in time. To calculate this, the credit reporting agency takes a snapshot of all your accounts, adds up how much you’ve spent on your cards, and divides by the sum of your credit limits.
The important thing to note is that it is a snapshot of your unpaid balance.
Let me illustrate: Bob has a credit limit of $1,000, spends exactly $10 a day on his credit card, and always pays off his balance on the last day of the month. This means the amount counted toward Bob’s credit utilization depends entirely on what day the credit reporting agency checks his balance. If they check it on the 15th of the month, his credit utilization is 15% ($150/$1,000), but if they check it on the 29th his credit utilization is 29%!
The lower your credit utilization the higher your score.
In order to lower your credit utilization you can do two things:
- Increase your total credit limit (the denominator, aka: the number on the bottom of a division problem). To accomplish this you can call your credit card issuer and request they raise your credit limit. Another way would be to open more credit cards. And on that note, check out my post on why it’s ok to open credit cards just to get the signup bonus.
- Lower the outstanding balance on your credit cards (the numerator, aka: the number on top of a division problem). If you pay off your balance every month you may be wondering ‘How do I go lower than a $0 balance?’ Great question! Remember that credit utilization is a measure of your outstanding balance on a specific day, which means you can improve your credit score by…
Paying off your credit card balance more often than once a month.
That’s the trick! Credit reporting agencies don’t tell you when they’re going to measure your credit utilization and it’s not always the same day every month. But if you make more frequent payments then you’ll have a lower balance when they do decide to check.
I personally pay off my credit card balances on Friday every week. It takes 5 minutes. I log in to my accounts, select “pay current balance” and bring those puppies down to $0. I did a pretty timely job of it last month; check out my credit utilization percentage:
Zero percent – hurray!
If you’d like to see your own credit utilization percentage signup for a FREE account at Credit Sesame. I personally use Credit Sesame and like that it gives you a grade for each of the factors affecting your credit score. I’ve plugged it in 3 posts now so, you know, do it.
Ok that’s all for today. Let me know if you have any thoughts or questions 🙂