Dear Liz: Our credit scores are in the low 800s. We always pay off all credit card balances before the next billing period.
We are currently charging for a cruise for us, our daughter and her husband. We are concerned about using too much of our available credit and therefore lowering our credit scores. We use a credit card and pay half of the balance this billing period and the remainder in the next billing period.
I’ve never been able to calculate “credit utilization”, but I’m sure we’ll beat it over the next two months even if we pay the amount charged in full. With this large charge, can you suggest anything else we can do?
Reply: Your credit utilization is simply the amount of available credit you are using. If your card has a limit of $10,000 and you earn $5,000 in charges, your credit utilization ratio is 50%. (If you’re not sure what your credit limit is, you can check your account online or call the number on the back of your card and ask.)
In general, the less available credit you use, the better.
The balance that matters for credit scoring purposes is the balance that is reported to the credit reporting agencies, and that is what you generally owe as of the closing date of your statement.
Making a payment just before the statement closes can help reduce the use of your credit. Some people make payments every week, or even more frequently, to keep their utilization in single digits.
However, if you don’t plan on applying for a new credit card or loan, you probably don’t need to worry about a temporary change in your credit scores because they’re already so high. Your scores will probably still be pretty good and will pick up once you pay off the balance.
Liz Weston, a Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.