There have been a number of posts that have asked this, both on this sub and others, and no one seems to provide any satisfactory or in depth explanation.
I see the words “statement date” and “ratio of use” thrown around with no follow up explanation as to what they mean.
So, what is it? And why does it have such a big impact on credit score (supposedly 30%)?
In: Economics
“Ratio of use” = “how much you’re using”.
“Statement date” = “when the bank calculates everything”.
If you have a credit card with a limit of $5,000 and you make one single transaction for $1,000, then you’re using 1/5 or 20% of your limit. That’s a metric the card issuer (aka “bank” since it’s ELI5) uses to determine how safe of a borrower you are — the more often you use a high percentage (ratio) of your total available credit, the riskier of a borrower you’re seen as.
That amount you’re using is aggregated once per month, on your statement date. Statement date is typically the same date every month, so let’s say that every month on the 15th your credit card gets a sort of snapshot taken of how much you’ve charged to it. Based on how much you’ve charged, you have a certain minimum to pay back within the next couple of weeks (or if you’re smart/able to, you pay back the full amount to avoid interest fees).
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