Do you check your credit reports and scores often, perhaps even monthly? If so, kudos to you on developing a wonderful and wise habit, one which has the potential to really pay off in the future. One of the best ways to achieve and maintain great credit is to monitor your reports and scores closely.
If you do check your credit often then you have probably also become aware of a rather frustrating and puzzling fact when it comes to how your credit card balances appear on your credit reports. Unfortunately, the current balance on your credit card account will generally not line up exactly with the balance which is reflected on your credit reports. Believe it or not, while these mismatched balances can certainly be frustrating, these discrepancies are probably not due to a credit reporting error.
Say Cheese
The balances which are reported by your card issuers to the credit bureaus do not actually represent the real-time activity which takes place on your accounts. In other words, your credit reports will not show an updated balance every time you make a new charge or even when you make a payment. Instead, credit reporting works quite a bit differently.
Your card issuer will actually update the information on your credit reports just once a month. This update occurs shortly after your statement closing date when your card issuer will send a snapshot of your balance and payment information as it is currently reflected on your account at that moment. That snapshot of your balance and other account activity will remain on your credit reports until the information is replaced with a new snapshot the following month.
What Is the Statement Closing Date?
The statement closing date on your credit card account is the date when your bill for the previous month is closed out. It signals the end of your current billing cycle and is also the day when your payment due date is set. Generally the due date will be scheduled for around 25 days after the statement closing date, depending upon your card issuer's policies. If you make any charges after your statement closing date those new charges will be added to the following monthly statement.
It is important to find out your statement closing date from your credit card issuer since this date (or very soon thereafter) is when your balance will be updated with the credit bureaus. Whatever your balance is on your statement closing date (or very soon thereafter) it will remain as such on your credit reports for the next month.
A Zero Balance On Your Credit Reports
Your revolving utilization (aka credit utilization) is a big deal when it comes to your credit scores. Credit scoring models are designed to reward consumers who have zero balances on their credit card accounts. However, even if you pay off your credit cards in full each month (kudos again on a great habit) your credit scores might not be benefiting from that commitment and discipline.
Here is an example to demonstrate why simply paying your credit card accounts off in full each month may not be enough to earn the great credit scores you desire.
· Total Credit Card Balance on Statement Closing Date (5th of the Month): $1,500
· Credit Utilization on Statement Closing Date (5th of the Month): 75% ($1,500 Balance/$2,000 Limit = 75% Utilization Ratio)
· Date Balance and Utilization Reported to 3 Credit Bureaus: 6th of the Month
· Date Current Balance Paid In Full: 30th of the Month (Due Date)
· Balance to Appear on Credit Reports Until 6th of the Following Month: $1,500 (75% Utilized)
In the example above even though the credit card balance was ultimately paid in full on the due date and, therefore, no interest fees were owed, the balance which would show up on the consumer's credit reports would be the one which was accurate on the statement closing date ($1,500 in this case). Since that balance leaves the cardholder heavily utilized (75%), there would almost certainly be a negative impact upon the cardholder's credit scores as a result, even though no late payments were made and even though the balance was actually paid in full by the due date. If the card holder continued to utilize the card and pay it off on the due date each month then this credit-score-damaging cycle would continue to repeat over and over again.
A Better Way to Pay
The good news is that your statement closing date is not a secret and by paying off your balance in full a few days prior to that date your card issuer should report a $0 balance to the credit bureaus on your account. You can typically find your statement closing date on your credit card statement or you can give the card issuer's customer service department a call for this information as well. Once you find out your statement closing date you will simply need to rearrange the date when you pay off your credit card balance each month.
By paying off your credit card balance each month a few days prior to your statement closing date your balance will actually be $0 when your monthly statement is released. As a result, the balance on your credit reports for the following month should be reported as $0 as well. This wise practice will not only help to save you money which might otherwise be wasted in interest charges, but you will also be setting yourself up for a credit score triumph as well.
Michelle Black is an author and leading credit expert with nearly a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.
