We all know that late payments can have serious implications for your credit score, but are there any benefits to making your credit card payment early? Well, according to the experts, the answer is yes. Making credit card payments before they come due may benefit your credit score. This is because repayment affects credit card billing cycles and how they relate to your credit report.
When Is the Best Time to Pay My Credit Card Bill?
Typically, when you pay down your account before your card’s statement due date (instead of on or before), you lower the utilization ratio that your lender uses to calculate your credit score. The statement’s closing date, the final day of your billing cycle, occurs 21 and 25 days before the date when your payment is due. On your statement closing date:
- The interest charge per month and minimum payments are calculated.
- Your statement or bill is generated and then posted to your online account.
- Your outstanding balance at the end of the billing cycle is documented and then reported to the national credit bureaus.
When you make early payments, you lower the total balance that your card issuer reports to the credit bureaus. As a result of making these early payments, your credit utilization ratio, which is used to calculate your credit score for that month, is lowered. Lower utilization generally improves your credit score, particularly when it stops the utilization from nearing or exceeding 30% of your total credit limit.
Furthermore, if your card issuer uses the adjusted balance approach to calculate finance charges, then early payment can help you save money. This is because, in the adjusted balance approach, your interest charge is based on your outstanding balance at the close of your billing cycle. There is also the grace period given by credit card issuers for early payments that are made on credit cards. Within this period, making payments in full means that no outstanding card balance on your account will be reported to the credit bureaus, which boosts your credit scores.
Bearing all this in mind, the only bad time to make your credit card bill is when your payment date is past due. This is a mistake that can have serious implications on your credit score.
Tip: In order to keep up with your billing cycles and statement closing dates, check your current minimum payment due and the due date on your online billing statement. Make early payments to avoid extra charges.
Does Paying Early Mean Less Interest?
When you make your credit card payment early, you have more days with a lower balance. This helps to lower your interest charges as well. If you pay your credit card bill in full before the statement closes, you might not have to pay interest at all, except when your payments have been paying down a balance over several months. Even so, most credit card issuers give their clients a grace period within which the client is not liable for interest payment.
Should you pay your balance before the closure of the statement, you will notice a ‘payments’ line on your statement that reflects the amount that has been taken away from your statement balance. Waiting later in the billing cycle to make a payment means your average balance will be higher, which translates to higher interest.
Can Early Payments Improve Credit?
Early payment of the credit card improves your credit score, particularly after a significant purchase. This is because 30% of your credit score is determined by your credit utilization, or how much credit you are using in relation to your total credit line. For instance, if you have a $800 credit line with a $400 balance, your credit utilization is 50%.
Credit card issuers generally make reports of account balances to credit bureaus on or around the time when your account statement closes. If your credit card balance is high, your credit issuer reports your high credit utilization. This kind of report is conceived as a negative factor by credit agencies, which will significantly reduce your credit score. Generally, credit scores begin to decline if you utilize 30–40 percent of your credit limit. Prepayment will lower your credit utilization, which in turn will raise your credit score.
Can Paying Ahead Clear Room for Other Needs?
Making payment in the middle of the statement period is favorable as it frees up credit for you to make purchases. When you pay your credit card, your payment amount is automatically added to your credit line. This can be especially useful when you’re about to max out your credit limit. Should you be at or above your credit limit, card issuers can decline any future purchases on the card.
Can You Send Your Payment Too Early?
It can never be too early for you to make your credit card payment. However, make sure that you check your statement period to which your early payment will be credited. For instance, if the closure date for your statement is July 30 and you pay on July 29, should your payment be short of any balance due, then the payment will be credited to the previous statement. This means that you will be required to make at least the minimum payment to your July 30 statement.
Reasons You Might Not Want to Pay Your Credit Card Bill Early
Early payment of your credit card bill has many benefits. But there are moments when you may not want to pay your credit card bill early. This is especially so when you have been given a ‘grace period’ on new credit but you have some balances carried over from previous months. While you might not pay interest on any new charges until after the grace period lapses, you’ll still be required to pay compound interest on those balances carried over and the interests they earn every day.
Paying your credit card bills before the due date has several advantages. Early payments help you have a higher credit score and open room for other purchases. It will also help you to establish sound financial habits and give you much-needed peace of mind.
Frequently Asked Questions
1. How many days before the due date should I pay my credit card?
At the very least, make a point to make your credit card payment by its due date every month. It is much better if you do it earlier, especially when your credit card utilization ratio begins to near 30%, regardless of when your bill is due. This ensures that your credit report to the credit bureaus is good at any given time of the month.
2. Is it bad to pay your credit card multiple times a month?
It is possible to make credit card bill payments several times a month in order to make sure that your credit card is not in the red. However, we recommend that you hold off and make a one-off payment. This is because making many payments within the month makes it look like you are not utilizing your credit at all. One of the ways through which credit is built is through a track record of responsible credit utilization.
3. What happens if I pay more than the minimum on my credit card?
Making a payment that exceeds your minimum reduces your credit utilization ratio, which improves your credit scores. It also helps you to make faster payments of your credit card balances. As such, in order to avoid negative effects on your credit scores and paying lots of interest, we recommend that you pay more than the minimum on your credit card.
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