Stop Paying Your Bills On-Time. It’s Hurting Your Credit.
Posted on October 30th, 2007 by Marc Chase Posted in Improve Your Credit Score | 11 CommentsHow many of you have been taught the best way to protect your credit is to always pay your bills on time?
We all have. It’s common sense.
I still remember the little chat my Dad had with me about credit when I was about 18 and got my first Montgomery Wards card. He said,
“Marc, credit can be a great thing; but make sure you always pay your bills on time or you're going to regret it."
What if I told you just “paying your bills on-time” was hurting your credit score? It’s true. Let me explain.
Credit card companies want you to have bad credit. If you have bad credit, they have control. If you have bad credit, they now have the justification (at least in their minds) to give you the worst possible interest rates; and interest is where they make their money.
That being said, they employ all kinds of scumbag tricks to help you - give them the excuse they need to jack your rates up (see universal default).
Just paying your bills on time is one of them. Here’s how it works.
Most credit card companies report to the credit bureaus about the same day they mail you your bill. You’re were dead before you even got the bill. Still don’t get it? Keep reading.
Your credit score is based on several factors. The second highest factor (30 percent) is your credit card balances. And that my friends, is one of the ways they get you.
Let me give you an example…
Let’s say it’s the 1st. of the month and you use $4,000.00 of an $8,000.00 credit limit. You’re not worried; you know your bill will arrive on the 15th. at which time you’ll have the money to pay-it-off in full.
Well, it’s already reported to the bureaus; $4000.00 and all. That’s because they reported it right before they even mailed you the bill. You never had a chance.
That’s 50 percent utilization, which we all know is bad. You should keep your balances below 10 percent. I guarantee you, 50 percent is dragging your score down.
Here’s where it gets worse. We’ve monitored thousands and thousands of credit reports; as well as the spending habits of our clients. 9 out of 10 people will go use their cards again right after paying them off.
If you’re thinking to yourself “then my balances will always look maxed”, you’d be right. Use that card right after paying your bill “on time”, guess what happens the next statement date?
It’s a vicious cycle that is sent into motion on purpose by credit card companies.
Here’s the good news. The solution is simple.
Call your credit card companies and find out their reporting date. Don’t wait for your bills to arrive, make sure that check is in their greedy little hands BEFORE they report.
Now, you’ve turned that that ugly little cycle into a positive. They will be reporting paid off cards every month.
Sorry, but this post is so far from the truth it is not responsible. You are telling people who have debt or credit issues not to pay on time.
I am sure this will egt removed, so i wont spend too much time responding, but the person who pays their card off monthly is not the person who has a credot card issue.
The target of your service and site is someone who is making smaller payment, not sending a 4000 cjheck in every month.
Most bank don’t even report monthly, and on late payments they have to wait 15 days after a payment date has come and gone.
And part of your credit score is how much credit is used. Too high hurt, and so does no balances.
Jessica,
Thank you very much for the input and your opinion. And as you see, the post is not removed. The object of this blog is education, and what would education be without input from every side?
With that said, I think you misunderstood the message. If I wrote it poorly – I apologize. (I am working on my writing skills; I promise.)
I’m not telling people “To Not” pay their bills on time, I’m telling them to pay them early. That was my attempt at a catchy headline (damned Brian Clarke)
You’re confusing my message with people who have debt and/or income problems, and people who have credit score problems. A maxed out credit card, or anything above 30% will harm your score no matter how much money you make.
Let me give you an example…
We recently had a couple call us who combined, made pretty good money. They were trying to refinance their house and were very upset with their loan officer because the quoted rate was pretty high.
After looking at their credit reports, it was clear; the problem was not the loan officer, or their payment history – it was their credit card balances. When we pointed out that their balances were high and dragging their scores down, he got even madder.
He swore that balances were wrong because they had always paid their bills “on time”.
Well, there’s your problem. Together, we called the credit card companies, found out their closing dates, billing dates etc. and what do you know? They reported the higher balances right before mailing out his statements
Finally, most banks do report monthly and I think you missed part of my message. If you read it carefully, I said “you should keep your balances below 10%”
With a few exceptions; I don’t even use my credit cards and my credit is often times flawless. (yes scores will be different almost daily.)
The object of this post was not about late payments, or the amount of payment you make. It’s about how they report and how simply paying “on time” is not the best strategy if you want to keep your score as high as possible.
If you have any other input, I would love to hear about it. Again, our purpose is to educate, debate and hear every side of every subject matter.
This is the first time I have heard about this. And it’s interesting how many of us have thought other wise. Thanks for the tip.
This make perfect sense - I have never thought about it before but I generally pay my credit card(s) off completely each month. If my credit card company is reporting on the first then the credit bureaus don’t know that I pay them off every month…
JTK - You’re right, and jessica agian I apologize if I wasn’t clear.
The point is not paying the bills off in full, its all about the day you pay them. Whether its 5.00 or 5,000 - what day could make all the difference in the world
That is so awesome. So what this means is - that if I pay my bill “on time” then over the next week or two use the card again, I’m basically going to show a balance all the time?
Hey-Thanks for the tip. I never thought of when they’d report before.
Marc: Thanks for the clarification. I just reread the original article, along with my response, and your response. I am still not sure I totally understand, but I should definitely apologize for my spelling in my last post! My husband was a Bank SVP and our primary income is from Real Estate investments. Thise two things make us very aware of our credit and their impacts. Having said that, is the primary purpose of the post to elt people know that if the bank reports credit prior to payment being made (even if they are on time) then that higher balance is reported, and is likley hurting them? If so - it make sense. If not, I should go back to college! Take care! Jessica
Hi Jessica,
You nailed it! My point was that if you’re paying your bills after the reporting date, it will report the higher balance (even if you paid on time)
“On time” is irrelevant, reporting date is what you should be shooting for.
Thanks again for the input
Thank’s for the information! I have never thought that paying my credit bills just on time can hurt my score!
hmm i consider myself financially savy and this had never even occured to me, but good post and good discussion in the comments.