When to Pay Off Your Credit Card and Increase Your Credit Score!

There is a specific date every single month that you can pay down your credit card and you can potentially increase your credit score, but I do have to go over some basics first in order to make sense of what I'm talking about. So if you do already know most of this information and you just wanna know what that specific date is, I will leave chapters in this video so that you can just skip forward. But if you are interested in knowing the basics first, we gotta start there. Basically, your credit score is affected in about three different areas just by using your credit card. So it's important to pay attention to all of them because they all have different strategies and that's why we have to go over these basics. The first category that's affected by your credit card is called credit history, and this one takes up 15% of your overall score. Now, this one is very straightforward. All you have to do is just keep an open, active credit card and you are gonna be building credit history here. Now, if you have a credit card open for 10 years and then you decide to close it, that is gonna close out that history. So it is a good idea to keep your cards open as long as possible because this is always affecting your credit score in a good way if you keep them open and active. The next category that's affected is called your payment history, and this one is a huge deal because it's worth 35% of your overall score. And basically, it's just saying that you need to make your payments on time, and this includes your credit card. So every single month, you're gonna be given a due date. Just make sure to at least pay the minimum payment by the due date. That way, you're building a positive payment history. Now, this doesn't mean that you're getting away with paying interest because if you are paying that minimum payment, it's a complete ripoff. You're basically paying about 99% interest. But at least if you're doing that and you're making the payment by the due date, then you are gonna be building a positive payment history. Now, you don't wanna have a late payment that's more than 30 days late because this can negatively affect your credit score. You can also have what's called a penalty APR. So your rate is gonna go up and you're gonna pay more in interest. And I've read that this can actually stay on your credit report as a late payment for up to seven years. So you really wanna avoid late payments at all costs. And if there's ever a mistake, make sure that you contact the bureaus and get those late payments taken off of your report because like I said, they can linger for a very long time. And then the last category that's affected is called your credit usage. And this one's also a big deal because it affects 30% of your overall score. And this one's a tiny bit more complicated to understand, but basically the way to look at it is that you just don't wanna carry a balance that's more than 30% of your overall limit. So for example, if you have a limit of $10,000 and you carry over a balance of $5,000, then that's a 50% usage and that is actually gonna hurt your credit score. So as long as you can keep it under 30% every single month, then you are gonna be helping your credit score. And this one specifically is the one that we're gonna be talking about in this video because you can pay down your credit card on a specific date every single month in order to help this usage be as good as possible when it's reported to the credit bureaus every single month. So basically the way that your credit card works every single month is that you're gonna start with your billing cycle. And what this means is basically everything that happens within your credit card during about a 30 day window will be accumulated. And then once that 30 days up, your cycle is gonna close and you're gonna be given what's called a statement. Now your statement is gonna come in either the mail or you can find it online. And your statement is gonna include a due date that's about 25 days after that cycle closed. And you're also gonna have a minimum payment and then you're gonna have your new balance owed. And that's what's gonna happen every single month on your credit card. So as an example, my Amazon Visa just ran its most recent billing cycle, which happened to be from November 2nd through December 1st. Now once December 1st hit, I was given my statement and this is what it looks like right here online. As you can see, I've got a new balance here of about 1700 bucks. And then I've also got a minimum payment option at $35. And then my due date happens to be December 26th, which like I said, is about 25 days after that cycle closed. Now I personally don't like to pay any interest on my credit cards. And so the way that you do this is just by paying off that new balance in full every single month by the due date. So by the time the due date rolls around on the 26th, I'll just make sure to pay off that full $1,702. That way I don't accrue any interest and that's how I like to pay off my credit card. Now what you need to understand in order for this video to make sense is that every month when your billing cycle closes, the statement that you're given with your new balance, the new balance is what is reported to the credit bureaus. So you wanna make sure that that balance is as low as possible by the time it's reported to the bureaus. So basically what you're gonna have to do is you're gonna have to make another payment after your due date before the cycle closes. That way you can get the balance down as far as possible. That way you can help your credit usage and your credit score can be as high as possible. So in my example, the due date is gonna be on the 26th and I am gonna make a full payment of that $1,700. That way the new balance is completely paid off and I'm not gonna pay any interest on the credit card. Now the thing is, is that I'm still using my credit card during the month. So I'm probably gonna accumulate another, let's say 800 to $1,000 by the time I actually make that payment. So what's gonna happen is after I actually make the $1,700 payment, I'm still gonna owe, let's say 800 bucks. Now, if I've only got $500 cash in my bank account extra, then I can pay that towards the credit card as my extra payment and I can get it all the way down to about $300. And that way, once the cycle closes, which is typically gonna be at the end of the month for me, once that closes, that $300 balance that's gonna be left over, that's what's gonna be reported to the bureaus. And honestly, with my $15,000 credit limit, $300 of 15,000 is only a 2% credit usage, which is extremely good. And this is gonna help my credit score because my balance is so low compared to what my limit is. So basically, if you wanna have your credit usage reported to the bureaus as low as possible every single month, then just find out when your cycle closes on your credit card and then just pay that down a couple days before it closes as much as you can. That way you can get your usage as low as possible and that's what's gonna be given to the credit bureaus every single month. And just a quick note here, but if you are gonna make a huge purchase on your credit card, I probably wouldn't do that right before your cycle closes because if it is reported, it's probably gonna mess up your credit usage and then your credit score is gonna go down just a little bit temporarily until you get that taken care of. So if you do have a huge purchase and you're in control of when you're gonna be making it, try to do it in the middle of the cycle and then pay that down. That way that's not reported the next month to the credit bureaus. Now, if you just found this channel, I'm Jason with Honest Finance and I make a lot of videos on different topics that'll give your life and your finances more value. So feel free to subscribe if you guys are interested, but thanks for watching. Have a great day.