Credit utilization is one of the biggest factors which credit models look at while calculating your credit score. You could have had a FICO score of 800 or more, but if you max out a credit card your FICO score may drop to 680 or below!! (For more information on credit utilization read The 5 Most Important Factors In A FICO Score)
Different then a late payment, collection, or bankruptcy etc., which can take your score years to recover from, credit utilization will only affect your score for as long as you have an open balance. As soon as the balance is paid off and reported as paid to the credit bureau your credit score will go right back up.
I underlined, “and it is reported as paid to the credit bureau,” because here is where it gets tricky. How long will it take your bank to report the paid balance to the credit bureau?
Most banks will report once a month, on the day, or the day before your statement prints. (Check out a list here) So, be sure to pay all balances a few days before the day your statement prints. Like this the balance will clear by the day (or the day before) the statement prints.
There are some banks that are lazy to report, and they may even skip a month or two before reporting your paid balance. Ouch!
So most of the time your credit score will go back up about a month or less after you paid off the balances. But depending on the bank, it may at times take longer.
Chase bank will update your report with in 48 hours if you pay your balance to zero.
If you’re applying for a mortgage or loan, your mortgage broker or lender can do for you what is called a rapid re-score. All you will need to do is obtain a zero balance letter from your credit card bank. This is a letter that you receive from the bank, stating that your balance is at zero. Ask them to fax it to you (no mail-that takes longer.) Once you receive it, send it over to your mortgage broker. He/she will send it to the credit bureaus and pay for a rapid re-score. Once all this is done, your credit report will update within 24 -48 hours. (Tell your mortgage broker to use the same company he uses to pull your credit for the rapid re-score.)
For more information on a rapid re-score read Rapid Rescore- Everything You Need To Know
Any other question you may have for me? You can always contact me by filling out the contact form found here.
For now, have a great day and a Happy Chanaka!