Dear Credit Card Adviser,
I’m in the initial phases of rebuilding my credit after a history of late payments and charge-offs (horrible, irresponsible and broke college days). I’m beginning to contact creditors to make arrangements for repayment/settlements, and will request the removal of delinquent credit report items (after I’ve proven myself with timely payments).

I also applied for and received a secured Bank of America credit card ($500 deposit/limit). Regarding the BofA credit card, when would you suggest is the best time to pay off the balances I incur? My only reason to use this card is for the purposes of rebuilding/improving my credit. Are there any benefits to making payments immediately after use? Or, should I wait until the statement is received by mail? How can I play this game strategically by saving money on interest fees and improving my credit? Please help! Thanks!
— Nikki

Dear Nikki,
Paying on time and in full is the only way to avoid paying interest. If you carry a balance, paying earlier in the month can shave off a few dollars in finance charges.

The credit score doesn’t care when you pay or how many times a month you pay. It cares about the reported balance on each card, as these balances figure into your debt-to-credit-limit ratio, or utilization. Utilization accounts for 30 percent of your FICO score, the most widely used scoring model. It considers the overall utilization and the highest utilization on any one card.

Most credit card issuers, including Bank of America, send updates to the consumer reporting agencies every month. The balance reported “in most cases is going to be the amount that was on the last billing statement,” says Barry Paperno, consumer operations manager at FICO.

“How you can benefit is by making a payment before the billing date for charges that were incurred in that month,” Paperno says. The early payment can reduce the reported balance, which can lower your utilization and help raise your score.

This tactic proves most useful when you have a sizable balance on a card with a low limit. With only $500 in available credit, it’s easy to run up a high utilization after a few purchases.

Let’s say you go shopping at the mall and spend $400 on clothes. If that balance is reported as is, it would put your utilization on the card at 80 percent. Not good. Instead you make a payment of $300 before the next closing date, and refrain from new charges. Now the $100 balance gets reported, and your debt ratio has gone down to 20 percent — a much more reasonable amount.

If you prepay the current month’s charges before the next closing date, a zero balance should get reported.

One rule to remember: If you get a bill, you must pay at least the minimum, regardless of whether you reduced the balance earlier in the billing cycle.

An easier score-building and money-saving strategy doesn’t involve early payments at all. Pay on time, apply for credit sparingly and keep statement balances as lean as possible. Try to use less than 30 percent of the credit limit in any given month, and less than 10 percent for maximum score benefit.

Good luck!

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