Why should you know about credit card hacks? Because they can help you manage your credit card balances and help improve your credit score. One popular hack that can help improve your credit score and personal finances is the 15/3 credit card payment method.
Most Canadians recognize the need to manage their card balances and pay on time. They may not know their credit limit, interest rates, or credit utilization, but they do know that a good relationship with the credit card company is vital for improving one’s credit score. What’s key to maintaining a good relationship is knowing the right credit card hacks, like the 15/3 payment method.
The Importance of FICO Score
Before we get into credit card hacks, let’s look at why you need to pay on time. Your credit card history makes up 35% of the score. And why is the FICO score so important? Because almost 90% of lenders in Canada use it to measure credit risk.
The FICO score is a three-digit number that tells a prospective lender how likely you are to repay a loan. Your credit score determines the ease with which you can get credit, the maximum amount you can get, and the speed with which lenders process your request.
You should be interested in your credit score because when you apply for a mortgage or car loan, that’s what the lender will use to measure your ability to repay. This is why it’s so important to monitor and use the right hacks to improve your score.
What is the 15/3 Credit Card Payment Hack?
Your credit card company expects you to make at least the minimum payment by the due date. So, most people do just that. They pay once a month on their revolving credit cards. If the payment is not automated, they might wait for the due date to make the payment. While this is technically what’s required, it’s not the best solution.
With the 15/3 payment hack, you make two payments a month. While not required by credit card bureaus or companies, this has benefits for the cardholder. This is how to do it:
- Know your due date. This is critical. Your credit card statement will clearly display it. Remember that your statement date is not your payment due date. The latter is usually 20 to 25 days after the statement date.
- Calculate the 15-day marker. Count back 15 days from your due date and you’ll have your 15-day marker. This is another reason why you should never ignore your credit card statement. If you don’t open the mail or read the email, you’ll waste more days, making it difficult to calculate the 15-day marker.
- Pay half the bill on that day. Make half of the payment on that day. You can use your preferred method, but ensure that your first payment is made 15 days before the due date.
- Figure out the 3-day marker. Three days from your due date will be the date for your next payment.
- Pay the rest on that day. Simply pay the remainder of your bill on the 3-day marker.
It may seem simple, but this can benefit your credit score—and financial well-being—in the long run.
What’s the Benefit of Making Payments Before the Due Date?
Making multiple payments before the due date doesn’t directly impact your credit score. Credit card companies are not interested in the number of payments a customer makes, but making payments before the due date can have other advantages.
First, it will help with your credit utilization ratio. This is the percentage of credit you actually use against the total credit available to you.
Second, making payments before the due date helps you plan your personal finances better. It encourages you to remember your due date and the total outstanding you owe. Once you make the first half of the payment, you’ll feel better knowing there isn’t a large outstanding payment.
Third, it will help you plan your expenses. When you know your outstanding amount and have to make two payments, you’ll be more aware of how much you spend with your credit card. All those impulse purchases will begin to pinch twice each month.
Does the 15/3 Payment Hack Work?
The Myth: You’re Doubling Your Payment History
You might think that doubling credit card payments also means doubling your payment history. By such logic, if you were to pay five times during a month, your payment history would also increase five times. This is simply not the case. The improvement to your credit score doesn’t come from the fact that you paid twice.
It’s All About Reduced Credit Card Utilization
Your credit card utilization rate (or ratio) tells credit card companies and bureaus how much credit you actually use. It’s the percentage of what you use calculated against what’s available to you. If your credit limit is $10,000 and your current balance is $3,500, your utilization rate is 35%.
If you consistently use a large percentage of your available credit, chances are you’ll max out your cards. This will, in all likelihood, lead to missed minimum payments and defaults. That’s not the type of individual a credit card company or lender wants to do business with.
By making two payments, your utilization rate is likely to remain low. When credit card companies report your rate to credit bureaus, a low rate indicates better financial health.
Statement Date Vs. Payment Due Date
Even among long-time credit card users, there may be confusion regarding the statement date and payment due date. Your statement date is the date upon which the company issues your statement, whereas your payment due date is when you have to make at least the minimum payment. Most companies allow 20 to 25 days between these dates.
Why Multiple Monthly Payments Boost Your Credit Score
Credit card bureaus love low utilization rates. It tells them that the individual is financially prudent, doesn’t overspend, and can be relied on to make timely payments.
Making multiple monthly payments helps maintain your credit card utilization rate in the healthy range. The MoneyWizard team suggests keeping your rate between 10 and 35%.
Should You Use The 15/3 Payment Hack?
You’ll find many hacks online, some more helpful than others. You should use the 15/3 hack because it lowers your credit utilization rate. It also helps with financial planning and ensuring you never miss a payment.
Moreover, it helps you get a better understanding of how much you spend each month. This will show where you can reduce spending and where you could afford to increase expenses.