There seems to be a lot of debate online about when the best time of the month truly is to
pay off your credit card bill and whether or not you should do that before your statement
arrives after your statement arrives, whether you should pay it off in full or leave a small
balance on the card and it can all just get a little bit confusing.
So today instead of just sharing another opinion with you,we're going to look at the actual
facts of what makes up your credit score in order to determine exactly when you should
pay off your credit card statement every single month to send your credit score to the moon.
Alright, let's jump right into it.
What is going on everyone I hope you are all having a fantastic day.
So in today's video, we are not only going to clarify exactly what makes up your credit
score but we are actually going to look at two of my personal credit card statements
from two very different credit cards to prove to you that this actually works.
Okay so the first debate that we hear all the time is whether or not you should pay
off your credit card in full or if you should leave a small balance on there to show the
credit card company that you're using this card and this one has a really simple answer
and that is you should pay off your credit card in full.
Whether you do it on the first day of the month or the last day of the month I don't
really care but please if you take nothing else from this video remember that you always
want to be paying off your credit card in full and I have no idea where the myth came
from that you want to carry a small balance on your credit card but I can tell you without
a doubt that is absolutely not true and all it's going to do is accrue interest and take
money out of your pocket and that is the last thing we want to do.
Okay so now that we’re on the same page with that one, let's open up a credit card
statement that some of you might be very familiar with and that is a statement for my discover
it credit card.
So obviously every credit card statement is going to look a little bit different and we're
going to look at a different example later on in the video but there's a few important
things that I want to point out here that should be the same across pretty much every
credit card statement.
First of all, when you get your statement you obviously want to look at your New Balance
because that is the amount that you have to pay off so in this case the balance is 0 and
that's actually a hint too when I personally pay off my credit card balances but I'll clarify
that in a second but the other really important point you want to make sure you don't miss
is the payment due date.
So this is an older statement so in this case the payment due date is the 20th of January
and typically your payment due date is going to be sometime in the month after your credit
card statement so if you are looking at your statement for the month of November then the
payment for that statement might not be due until sometime in December but again that
varies based on your credit card so make sure you look at your statement and you know exactly
when your payment is due.
The other piece of information that you will often see is the minimum payment and most
of the time the minimum payment number will actually be significantly lower than the balance
due and that's because the credit card company only actually requires you to make a minimum
payment and it does not require you to pay it off in full because remember they really
want you to carry a balance so that you accrue interest and therefore have to pay them money
but again please do not do that and you should completely ignore this minimum payment because
it means absolutely nothing and the only number you want to focus on is that New Balance and
of course the date that your payment is due.
Typically on a statement, you'll also have your previous balance so in this case, you
can see that it's actually a negative number which just means that I had a statement credit
on the previous statement and in this month you can see that I spent $4,456 yet I only
paid $4437 and again that's just because I went into this month with an $18 statement
credit.
If it was really confusing don't worry about it too much but the important thing is that
my balance is $0.00 but how is that possible if I spent over $4,000 in this month?
Well, that's actually the answer to the big question for today's video and that is because
personally, I'm a firm believer that you want to pay off your credit card balance before
your statement arrives.
Now the important takeaway from this video is that you need to pay off your credit card
balance before the payment due date so that you don't accrue interest in fees but one
of the largest factors that makes up your credit score is what's called your credit
utilization and basically that is a percentage that you spend of the total credit that is
available to you.
So as you can see on this particular credit card I have a $5000 limit and I spent almost
$5000 in this month meaning had I just let that appear on my statement my credit utilization
would have been almost 100% which is really really bad.
Typically you'll see online that you want to keep your credit utilization below 30%
but I would argue that you actually want to keep it below 10% and personally I think that
you should really try to keep it at 0.
Now I know that there's going to be some of you that might disagree with that but in my
mind, it's very simple, the lower your credit utilization the higher your credit score so
in my case my credit utilization is 0 and I can say first hand that using this strategy
has boosted my credit score over 200 points and it now sits at a high 700 with only a
few credit cards and no other kind of debt.
I do want to clarify that in terms of a specific day of the month that you want to pay off
your credit card, that actually varies depending on when you're statement is processed each
month and depending on your credit card you might actually be able to change this.
For example, I know with my American Express card which we're actually going to look at
next I'm able to select which day of the month my payments are due but again I always pay
off the card before it's due so to me that doesn't really matter.
Now Speaking of my American Express card that actually brings up a really interesting question
that I frequently get and that is how does the whole credit utilization thing work on
a card that doesn't have a hard credit limit like my American Express gold card and therefore
how do you know when to pay off that card.
Well, the short answer is I don't really know how credit utilization works and I'm not entirely
sure anyone does.
I have seen different articles talking about how a no-limit card can actually hurt your
credit score because they aren't able to determine that utilization but I would argue that this
only reiterates the importance of paying off your card before your statement arrives in
order to keep your total spending at 0% regardless of what your limits or lack of credit limit
is.
So again right now you're looking at a recent American Express credit card statement of
mine and you can see that in this month I spent $5305 and I have made payments of $5305
so my total balance due is again $0.00 and that's because I made those payments before
my credit card statement arrived.
Now there have been cases where a charge might get posted at the last minute and therefore
it shows up on my statement and I can say first hand that I have seen that directly
impact my credit score in a negative way because it raises my utilization and therefore decreases
my credit score so regardless of whether you have a standard credit card with a credit
limit or you have one of these charge cards, it is my personal belief and suggestion that
you pay off your card in full before your statement is processed.
And if anything be sure to set up autopay on any of your credit cards to make sure that
you never have a payment that goes past the due date because trust me that will really
hurt your credit score.
So I would love to know what you think of this debate down in the comment section below
and I know that my personal strategy might seem a little unconventional but again I can
say firsthand that I have seen this directly increase my credit score significantly and
when I do have those small charges appear on my statement I've seen it decrease my credit
score.
So in my opinion you definitely want to pay off all of the charges on your card before
your statement arrives so that your credit utilization remains at 0%.
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in the future and of course, thank you so much for your time I really do appreciate
it so much take it easy and I'll see you in the next one.