How to Pay Bills to Increase Your Credit Score

Introduction

• Low credit score often due to incorrect bill payment.
• Effective strategies to improve credit score.
• Additional strategy if struggling to keep up with bills.

Differences Between Credit Cards and Loans

• Different strategies for paying off credit cards and loans.

Understanding Credit Card Statements

• Example: Chase Credit Card
• Key Parts of a Credit Card Statement:
  • Previous balance
  • New balance
  • Minimum payment
  • Payment due date

Account Summary

• Tracks any rolling balance, purchases, cash advances, and interest.
• Important dates: opening and closing dates.
• Billing Cycle:
  • Typically 28-31 days.
  • Statement closing date crucial as balances reported to credit bureaus.

Credit Utilization

• Calculation: New balance / Credit limit
• Aim for under 10% utilization.
• Affects 30% of overall credit score.
• High utilization viewed as riskier by lenders, lowering credit score.

Payment Timing

• Pay 2-3 days before the statement closing date.
• Prevents weekend delays affecting balance reporting.
• Avoid using credit card until the new cycle starts.

Managing Multiple Credit Cards

• Methods:
  • Spreadsheet
  • Automatic payments
  • Shifting statement due dates to the same date

Strategy for High Credit Card Debt

• Example: Jeff, $5,000 monthly income, $5,000 monthly expenses.
• Steps:
  • Pay bulk of income immediately towards credit card.
  • Use credit card for necessary expenses.
  • Reduces credit card balance and improves credit score over time.
  • Potential to build a cushion on the credit card as an emergency fund.
• Calculation shows paying off debt in around 20 months.

Paying Off Loans

• Loans have fixed monthly payments and terms unlike credit cards.
• Paying off loans might impact credit score short-term.
• Strategy: Pay off most of the loan, leaving a small balance.
  • Enhances payment history.
  • Reduces interest over time.
  • Longer payment history benefits credit score.

Closing Remarks

• Focus on payment history and amounts owed for best credit impact.
• Strategies vary based on loan types and individual financial situations.
• Encouragement to discuss strategies in the comments.

Conclusion

• Aim to pay off large portions early while maintaining manageable balances.
• Tailor approach based on specific credit situations.