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piratelady15

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What does maxing out a credit card but paying in full each month do to your score?

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Short/long term effects will vary

Maxing out a card every month and paying it in full could cause a volatile mess from time to time in regard to your credit score ... in the long term, hypothetically, it shouldn't really change anything (and indirectly, your scores should improve at least modestly over time).

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The short term madness (your credit score could jump up and down all over the place) is likely to occur because credit utilization (percentage of the available credit you are using) is not cumulative ... by that, I mean that it changes every month, with a total disregard to your past. This differs from your payment history, with which your score will improve gently over time as any negative items in your history get older. So with utilization, if you have a reported balance of $999 on a card that has a $1,000 limit, you'll have a 99% utilization ... AT THAT MOMENT. If you paid that $999 off in full the next month, you'll see your utilization shoot down to 0% as soon as the card company reports the change. 

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That last bit is important ("company reports the change") ... Transunion, Equifax and Experian aren't sitting around watching you like Santa Claus. They score you based on reports sent to them from your creditors and lenders. This can sometimes take a while, and creditors send these reports whenever they feel like it.

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This can be troublesome for people who are trying to build their credit, but have very low credit limits BECAUSE their still building their credit. It's difficult to see the forward progress in your card if your score is jumping all over the place due to high utilization. Some people then assume that they can't use their cards at all, or that they must carry a small balance at all times. Both of these are myths (understandable confusion, but wrong none-the-less).

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If this is your issue, a good way to get around it is to pay off your credit balance in full multiple times a month, rather than only once .. it'll cost you nothing more than a few more minutes of time and effort. Try once a week if you can manage. When I was getting started, that's exactly what I did. I never paid any interest, and my credit utilization was always rather low, since I was paying everything off weekly. Thus, the worst that would happen is that a card company reported my card was 25% utilized (as opposed to almost 100). Plus, credit card companies like to see you using their card constantly, as they will make money off of the swipes. They might enjoy collecting interest on you, but they'll take what they can get ... at least you're a responsible borrower.

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This practice will help you more and more over time. After about a year or so (no less than 6 months), you might try asking companies giving you low limits for an increase in your credit line. This will lower your utilization if you maintain your normal spending/pay off amounts, which is a good thing. Try only ONCE every 6 months or more, and with only ONE creditor at a time. Asking for a credit increase can sometimes incur a hard inquiry, and you don't want to drum up a tons of those at once. Having one or two isn't a huge deal. 5 or 6 would not look good. I believe these stop having a negative effect after about a year, and should fall off your report completely after two years.

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Hopefully that helps. Cheers.

Top Contributor
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short answer

Pay them off multiple times a month so that your balance is never more than 30% of your limit. If it is, that will lower your score. It's tricky because lenders only report to buraeus once a month, so if you pay it all off the day after they reported, they'll never know.

Google "Credit Karma How Reporting Works" for a very short animated video that explains better

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