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I am looking for details on how to build and raise credit score as fast as possible. I have done some research already, but I am foggy on a few points.

Details about me and my financial situation aside, let's talk in general. Here are a couple points that can apply to anyone:

  • Maintain a balance on your cards much lower than your combined credit limit. Some say 30% of your limit, others say 7%. Testing some of those online score estimators, it seems that a balance of 1-9% is ideal for your credit score. Is this correct?
  • Pay off your balance in full, but not immediately. Most people agree that using a credit card like a debit card (immediately paying off the card after every purchase) can actually hurt your score, as there needs to be a constant balance: so just let the debt accrue and pay off the full balance a day or two before the due date.

These two points make some sense, but they also conflict slightly. Over the course of a month, what combination of purchases, credit utilization, and credit card payments, all together creates a perfect score increase for that month? Consider this hypothetically: if someone truly does not desire to use credit for any reason other than to "get the highest score," like a game.

Compare the following scenarios. Let's assume that 7% is the gold-standard credit utilization.

  1. On the first day of the month, 7% of the limit is charged to the card. One day before the due date, the balance is paid in full. Wait two days, and repeat.
  2. Over the course of the first two weeks of the month, 80% of the limit is accrued on the card. At that point, a balance is paid such that only 7% of the limit remains. One day before the due date, the remaining balance is paid in full.
  3. As in (2), 80% is accrued over two weeks, but instead of paying down to 7%, it is paid in full. No other charges are applied to the card before the due date.
  4. Starting from the first day until the day before the due date, a constant flow of charges are applied to the card such that on the last day, 7% of the limit appears as the balance. It is then paid in full.
  5. Similar to (1), 7% of the limit is made in purchases on the first day. In a more realistic situation, more purchases are made occasionally throughout the month such that the utilization goes above 7%, but that surplus utilization is immediately paid off after every purchase (on the same day) such that the utilization goes back down to 7%. At the end of the month, the remaining 7% is paid in full.

I suppose where my confusion truly lies is in the details of the mechanics. How would these scenarios rank, in order from most improving to least improving (and why)? Is there some other scenario that could improve the score even more?

Is there a particular set of days throughout the month where the credit card companies report to the credit bureaus? If so, what relevant information do they send? Do they only care about the current balance at the time of the report, or some aggregated daily average since the last report? Does the total amount of charges applied matter, or just your daily utilization (as in Scenario 1 versus Scenario 5)? Do they track the daily utilization continuously throughout the day, pull its current value at a particular time during the day, or take an average of its value for that day?

Again, first think of this as a game. If your only goal was to get the highest score every month, what would your battle-plan be given unlimited resources and the ability to control your credit card balance at every minute throughout every day? (Feel free to also include other aspects beyond just the utilization and payment schedule if you believe it would help)

This is a purely mathematical optimization problem. Unfortunately, the FICO credit score algorithm is not publicly available (among other variables with the credit card companies and credit bureaus), so we have to guess.

Note that this question is merely to try to understand the mechanics of the system, not a legitimate plan for controlling one's finances. By better understanding the system, a more sophisticated financial plan can be devised for real life.

marked as duplicate by keshlam, JoeTaxpayer Jul 12 '16 at 19:52

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    "Maintain a balance on your credit scores." This is bad advice - never maintain a balance on your cards; the interest you pay every month will exceed any (small, uncalculable) benefit you may get from having a slightly lower score down the road. The only reasonable actions to take with regards to credit are those which cost you nothing - ie: keeping open your oldest card, with zero balance and zero annual fee. For the most part, the best advice with regards to credit scores is to act prudently and let the scores fall where they will. The main exception would be if you have no history... – Grade 'Eh' Bacon Jul 12 '16 at 18:51
  • ...at all. In which case, it may be wise to open up a credit card, use it to make your standard daily purchases, and pay it off, in full, every month. Other tidbits of advice may exist, but be sure they are all free, or else they will be likely to backfire on you, and cost you money in the long run. – Grade 'Eh' Bacon Jul 12 '16 at 18:52
  • After reading the full question through a second time, I see that when you say "maintain a balance", you mean only during the month, not after the month. As long as you pay the balance off before interest begins accruing, yes this is fine. However an obsession with one's credit score is not the best way to invest your time to improve your finances. – Grade 'Eh' Bacon Jul 12 '16 at 18:54
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    Multiple answers here have advised that the balance is reported at the time the bill is generated. Utilization mid cycle is meaningless. This question is likely to be voted closed as a duplicate. – JoeTaxpayer Jul 12 '16 at 19:04
  • That's fine if it's voted to be closed, I read some other things and did not come to a conclusion. The whole [credit] system is so convoluted. – Wiz Jul 12 '16 at 19:18
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First, you need to ask yourself why you want a higher score. There is a point at which you gain no benefit from increasing your score.

Second, you need to understand that the credit utilization component of your score is an instantaneous value. It has no history and no memory. Therefore, maintaining a specific utilization percentage every month for a year will have no permanent affect on your score. If you did figure out what the optimal percentage is and kept your utilization at that value for a year, but then one month had a "bad" utilization number, your score would drop for that month. Once you get it back to the "good" number, your score would instantly be back. Likewise, you could have a "bad" utilization for a year, but one "good" month would make the previous year's utilization meaningless.

Third, your credit balances only get reported once each month, so trying to artificially maintain a certain utilization percentage during each day of the month accomplishes nothing.

Finally, the reason that the FICO score formula is secret is to prevent people from artificially gaming the system.

I recommend that you not worry about your score. Pay your bills on-time, and your score will be good enough.

  • Hi Ben, thanks for your response. I read your links. If credit utilization has no memory, then why is it so important (around 30% of the score)? Does this mean it's only important to manage your utilization if you're planning on getting a credit report soon? Also, I just want to understand how the system works, it doesn't mean I feel the need to maximize my score at all. And you're right, the FICO score is secret to prevent gaming, but in this hypothetical situation, that's what I'm trying to do. – Wiz Jul 12 '16 at 19:13
  • @Wiz For the answer to that question, see Why is a US credit score based on credit utilization? – Ben Miller Jul 12 '16 at 19:14
  • @Wiz See also this answer, in which JoeTaxpayer talks about some experimentation he did with his own utilization and credit score. – Ben Miller Jul 12 '16 at 19:22
  • That's the one that I mentioned resolved the issue the best, in the comment section above. Thanks – Wiz Jul 12 '16 at 19:44

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