Dear Credit Care,

I recently charged a large expense on one of my credit cards. The previous statement shows that I've used up over 80% of my available credit limit. However, I've since paid the full balance. How will this hurt my credit, and if so, for how long? 

- Kevin

Dear Kevin,

It's smart to use a credit card to make a major purchase and then pay it off in a timely manner -- ideally, in 90 days or fewer. Potential lenders and others that may view your credit reports recognize that. However, the exact timing of that purchase will help determine the impact the transaction has on your credit score.

Your credit score is calculated based on the information included in your credit reports on the day the credit score is requested. Your card issuer and other creditors typically report to the credit bureaus every month, though. That means that your credit report may show you have a balance, even though you've already paid it off.

Here's how it works:

  • Using your example, after making a large purchase on March 1, your credit card balance would equal 80% of your credit limit.
  • Then let's say your credit card statement comes in the mail on March 12 and it includes that high balance.
  • The issuer then reports that statement balance to the credit bureaus on March 14. That's fairly typical. Many issuers report to bureaus on a monthly basis, simply sending the cardholder's balance to the bureaus.  
  • Finally, you pay your balance off in full on March 16. That payment will likely not be reflected on your credit report or in your credit score for nearly another month.

You can help mitigate this by making multiple payments in a month. Perhaps you can pay half of the balance immediately, so you lower the balance on your next statement. Then you can pay the other half later. In paying half the balance, you'd knock your credit utilization rate from 80% to 40%. That's not perfect, but it's far, far better than 80%.

Don't be afraid to ask your credit card issuer when it reports your balance to the credit bureaus. Once you know that, keep an eye on your credit report to make sure that things are working as they should. You are entitled to free copies of your credit reports each year. You can access copies from the three major credit bureaus at AnnualCreditReport.com. Once your lower balance has been reported to the bureaus, you should see your credit score recover relatively quickly -- within a month or two.

Handle your credit with care!