Closing Date and Due Dates Can Impact Your Credit Score – Episode #8

Closing Date, Due Date Play Role in Your Credit Score

There are two critical dates to be aware of when it comes to credit cards.

• Closing date – when your credit card balance is calculated
  • This is the number reported to the credit bureaus as your monthly balance.
• Due date is when your credit card payment is due

Tip: switch all your cards dates to keep the dates straight.  It’s hard enough to keep organized in today’s world, so take a few minutes to call all your credit cards and pick out dates that are similar across all of your cards.  Try for the 15th for the closing date and the 5th for your due date. Most credit card issuers will let you pick your dates, but if you have one that doesn’t let you switch then simply switch the dates on the cards to make that one.

Once you have your dates set up, you have more power to keep your balances low.  Let’s look at a very personal example below.  Here I have actual transactions over the course of a 31 day pay period.  In this example, my closing date is the 25th.  In scenario 1, I make a payment AFTER the closing date – on the 29th – for the FULL amount.  Still what gets reported to the credit bureau is a balance of $1692.45 [the yellow line].  In scenario 2, I make a payment BEFORE the closing date – on the 21st.  So, I’ve reset the clock.  Now, what the bureau sees is a reported amount of $195.95.

If my credit limit is $3000, here would be utilization figures for the period:

• Scenario 1: $1692.45/$3000 = 56%
• Scenario 2: $195.95/$3000 = 6%

A 56% credit card utilization usually doesn’t mean a great credit score.  Whereas, I know for a fact that members of the 775+ club tend to use less than 10% of their credit, and often they use just 5% of their available credit.

Thus, the result is a much better credit card utilization figure and that will lead to an improvement in your credit score.  This begs the question, do I do this personally?  Answer: sort of.  I try to pay off my credit cards every two weeks instead.  Why?  Like most of us, I’m busy and I might not remember to pay it off before the closing date each month.  If I miss by a couple of days of the closing date, I’m back to being a regular payer.  For me, it’s been easier to pay every couple of weeks, even every week if things aren’t so busy.  I imagine that as I get into my mobile apps more and more, this will just keep getting easier.

Plus, here’s another issue.  The statement date might be different than the closing date.  Some people recommend paying 2-3 days before the closing date.   This is another reason to adopt my every two weeks strategy.  It’s just easier to figure this out.

One more reminder, I do all this in addition to having all my credit card accounts setup for auto-pay.  The above strategy has nothing to do with paying on time.  It’s all about paying ahead of time.  Auto-pay acts as a backup in case something doesn’t happen – like when I go on vacation.