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So, I am new to the US credit card system, and I have read about the credit utilization ratio around. Everyone talks about it as being the percentage of your current balance over your current credit limits, across all your credit lines, but the definition of "current" is often a bit shady, I have found. A few resources mention that what matters is the balance you have at the end of the billing cycle, as that's when credit card companies typically report your credit data to the competent bureaus, but I have found mixed information in this regard.

Now, say I have one credit card with a $200 credit line. Whenever I make a payment with my credit card, I pay off the corresponding balance appearing on my account, as soon as it appears (so, 1-2 business days after the purchase). Say I am 100% consistent with this. Before I pay it off right as it appears, my balance never exceeds $65, which is 32.5% of my credit line. Say that, in a typical month, I borrow about $120 in total from my credit card (thus, $120 is what I get by summing up all the purchases made with the credit card). At the end of each billing cycle, my bill always shows a balance of $0.00.

Supposing that this scenario repeats without any change every month, which of the following is a better estimate of my credit card utilization ratio: 0%; the maximum balance/credit ratio that I kept at any given moment on my single credit card (so, in the above situation, 32.5%); or 60%, that is the percentage corresponding to 120/200 (total amount borrowed/credit line max)?

Thank you in advance for your insights.

  • Even though the "high balance" ($65) is not used to calculate your utilization, many banks do report that into your credit report. – Ben Voigt Jan 13 '20 at 21:28
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Unfortunately, the hard-truth answer to your question is it depends because different issuing banks can have slightly different policies for reporting data to the credit bureaus. So, if you want the literal answer for a specific bank, you should call them and ask.

However, in a general sense, the process of submitting data to credit bureaus isn't inherently linked to your billing cycle. An issuing bank may have multiple billing cycles spread throughout the month (my bank has 4 different cycles), but they will typically send data to the bureaus on one specific day each month (usually the same day, i.e. the first or 15th of every month). What gets reported to the bureaus as your balance for that month is basically the balance on your card at the time that reporting job is run.

So, when your bill is generated, it will show the balance you had on the day it was generated. But that doesn't automatically mean that your credit report will show the same balance, because the two processes might not align.

However, since you've indicated that you are paying the balance off immediately when the transaction appears, and most banks send data to bureaus as part of overnight batch processes, it's almost certain that your balance will always show as zero, since you're theoretically never carrying a balance overnight (so your balance on the night that the file is generated will be zero).

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which of the following is a better estimate of my credit card utilization ratio: 0%

This one: the credit scoring companies only know what the banks tell them, and -- in my experience -- they only after a billing cycle. Thus, if your balance is $0 on the statement date, that's what they tell the credit bureaus.

Two of my own recent observations:

1 - During the middle of a billing cycle, I made a large charge which bumped the usage on that one card to 25%. After that billing cycle, my credit score dropped 15 points.

I paid that charge a month after the charge was made (again, in the middle of the billing cycle), and after that billing cycle completed, my score went back up to it's previous value.

In other words, credit scores have no "memory" of previous usage ratios. They only care about the current usage ratio.

2 - You get a slight score boost by maintaining a small (1% or less) balance at the end of the cycle. (If you regularly use the card, you'll never pay interest on it.)

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