credit

Should I wait for statement to pay credit card?

Janna HerronDear Credit Card Adviser,
I just got my first credit card with a $500 limit. I want to build credit to buy a car in a few months.

I have been using the card to pay for gas and small purchases. I pay the balance immediately after purchasing so I can keep track of my spending. My brother told me that this is actually harming my credit as the card issuer will report my balance as zero, which would indicate I'm not using my card. Is that true? Should I wait until my statement comes or will it not make any difference? I like to pay immediately because I am afraid I might forget.
-- Glen

Dear Glen,
You can forget what your brother said. He's wrong.

First, credit card issuers report the current status to the bureaus every month. If the credit card is paid on time, no matter if it has been paid in little bits or all at once, it will be reported as "paid as agreed." That's probably what shows up on your credit reports.

Second, by paying off your purchases right away, you lower your utilization rate for that card. Utilization rate is the percentage of available credit you use. It's calculated for each credit card account and for all of them in aggregate.

For example, if you charge $100 on your credit card, then you're using 20 percent of your available credit for that card. If you charge $400 across three credit cards with $1,000 limits each, then you're using 13 percent of your total available credit. The lower the percentage or rate, the better for your credit score. The rule of thumb is to keep the rate below 20 percent for the biggest boost to your credit score.

So, paying it multiple times during the month to either eliminate or reduce the statement balance is a very good idea. If you pay for your purchases immediately before the billing statement is created, then your balance doesn't appear on your statement and isn't reported to the credit bureaus. That effectively gives you a zero-percent utilization rate, which helps, not hurts, your credit score.

"I pay my credit card several times some months," says John Ulzheimer, credit expert at Credit Sesame and who once received a perfect VantageScore. "You don't earn points because your account is active or inactive."

Also, if you're worried about forgetting to pay your bill, check to see if your issuer offers automatic payments for peace of mind. Keep up the good habits!

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