With all of the information online revolving around credit cards and how to use them, let me take the time out to simplify things for you. Before we get going, make sure that you save and share this article to your social media to help get the word out.
First thing, if you never want to end up paying interest on your credit cards, then you do this by never carrying a balance on your credit cards past your due date. This is important because there is another important date that you want to do want to carry the balance on in order to tap into your utilization factor. It's just not your due date.
Lenders will not consider you late on your payment until you are exactly 31 days past your due date with your payment. But they will begin charging you interest the first day after your due date that you are late. Interest on a credit card makes it harder to pay down/off your balances after a while. This is why you never want to carry a balance past your due date.
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A good rule of thumb with this and making sure that you never get a late payment is to use automatic bill pay. This way even if you forget to pay the bill/credit card, you will not suffer any interest charges or late fees.
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Another good rule of thumb when it comes to managing credit cards is to never spend more on the card than you can afford to pay off at the end/beginning of the month. Most people's issue with credit starts before they get the card with budgeting and spending. If you struggle with either of these, then managing a credit card may be difficult for you.
The next and very important thing that you should consider when managing a credit card is to know what date your lender reports to the credit bureaus. Sometimes you can find this on your mobile app, credit card statement or just by calling your lender and asking them.
This date that your balance is reported to the bureaus is called your "statement close date". And it's on this date that you want to make sure that you are carrying some a balance of no less than 1% but no more than 10% of your limit on this date. This shows the bureaus and more importantly, the FICO algorithm, that you are responsible at managing your debt and that you are not too dependent on it. This also allows you to tap into one of your FICO factors called your "utilization ratio" (the amount of credit that you are using compared to the total amount of credit your are given).
If your card reports a Zero balance on your statement close date then that is just as bad as having a balance over 30% of your limit reporting. This is because it looks to the FICO algorithm like you don't even use the credit. Which, again, is just as bad as over using your credit.
Conventional wisdom teaches you to never have more than 30% of your limit reporting on your statement date but that is not case if you want to maximize your credit score. People with excellent credit carry a utilization of around 6% - 7% on average. They also do not get late payments and make sure their credit cards are paid on time every month. Late payments will drop your score 100 to 200 points depending on the account.
This is the key takeaway! The credit bureaus only get an update of your credit card information once a month and they only see TWO things when they do. 1) Your balance and 2) If you made your payment on time.
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