How Card Companies Report Credit Utilization to Bureaus

Dear Let's Talk Credit,

How do credit card companies report credit utilization to the credit bureaus? Do they report just the monthly statement balance or total transactions? I currently go over the 10% credit utilization on one of my cards each month, but I make a separate payment before the statement closing date to get my statement balance under that 10%. Will this strategy work? If not, how long does high credit utilization affect your credit score (i.e. month to month, three-month period, two years, etc.)? Thanks.

- Steve

Dear Steve,

Card issuers report to the credit bureaus in different ways. Some report specific monthly payment information along with account balance and credit limit; others do not. The biggest issue with credit utilization and credit scores is that your score is based on a snapshot of your credit report on a given day. If the snapshot of your credit report is taken before you make credit card payments for the month, you would be over the ideal utilization rate of 10%.

Your FICO credit score calculates credit utilization as 30% of your overall credit score. As with all scoring, how much this one category can affect your score depends on the other contents of your credit report. For example, if you are doing everything else right, such as paying what you owe on time and as agreed every month, the difference between 10% credit utilization and 20% utilization is not likely to drop your score by much.

You will want your credit score to be at its highest level when applying for new credit, leasing a home, applying for new employment or purchasing insurance. If you want to be sure that your credit utilization is at or below 10% when the snapshot of your credit is taken, you can contact your card issuers and ask what day reports are made to the credit bureaus. Then, you can be sure to make payments on your accounts before the reporting day. Another option is to refrain from using your cards for 30 days leading up to the event where you know your credit score/report will be reviewed.

Keep in mind that the scoring models take into account your total credit limit across all credit card accounts as well as each individual account. Your credit report and credit score are usually an accurate illustration of how you are managing your financial life. If you use only the credit you need and can afford to pay on time and as agreed, your credit score will reflect that you are a good risk.

Let's keep talking!