With a credit card, you can earn rewards, pay for travel, and enjoy other benefits. Having a credit card, however, can be pricey if you fail to make your payments on time or in full.
Are there any additional benefits if you opt to pay off your bill before the due date? Let’s delve into whether it’s worth making credit card payments early.
Understanding the billing cycle
To determine when you should pay your credit card bill, you’ll want to know some key terms first.
- Billing cycle. The time between the close of your last statement and the current statement. Typically, this is a period of 28 to 31 days when transactions are posted to your account.
- Statement balance. During the billing cycle, any transactions that are posted to your account, leftover balances, and interest charges are included in the statement balance. The statement balance is what you owe.
- Due date. This is the due date for your credit card bill. To avoid paying a late fee, you must make at least the minimum payment.
When is the best time to pay your credit card bill?
Generally, it’s best to pay off your credit card bill in full and on time (aka on the due date) every month. Doing so will prevent carrying a balance and incurring hefty interest charges. You must at least make the minimum payment if you can’t pay off your entire statement balance, or you’ll be on the hook for a late fee.
However, for some, there are advantages to paying off your credit card bill early. If you want to boost your credit score or reduce the interest you pay on your balance, making payments before the due date can help you do both.
Does paying off your credit card bill early affect your credit score?
While making on-time payments is the most important factor in your credit score, accounting for 35% of your FICO score, your credit utilization ratio is another important component.
The credit utilization ratio is the ratio of credit you use to the amount of credit you’re extended. For example, if you spend $2,000 of your $10,000 credit limit, your utilization ratio would be 20%. Experts generally recommend keeping your utilization ratio below 30% as a low ratio indicates that you’re not close to maxing out your credit line.
So how exactly does paying off your bill before the due date impact your credit utilization ratio?
Card issuers typically report your credit history to the three credit bureaus—Equifax, Experian, and TransUnion—every billing cycle. For example, if you paid off part of your balance before the issuer reports your information to the credit bureaus, a lower credit utilization ratio will be reported.
The card issuer usually won’t disclose when they report to the bureaus, but you can call and ask your issuer when they report if you want to make payments before the due date.
Does paying off your credit card bill early impact your interest?
You’ll be charged interest for balances you don’t pay in full and carry over to the next billing cycle. The rate of interest you’ll pay is determined by the card’s annual percentage rate (APR).
Some issuers calculate interest daily based on your average balance. If you plan to carry a balance, making an extra payment or paying off a portion before the due date can help you save some money because you’ll accrue less interest over the month.
The takeaway
Some people will benefit from paying off their credit card bills early, especially those who want to improve their credit scores or reduce the amount of interest they owe.
However, the most important thing is to make your payment on time. If you need help remembering when your bill is due, call the card issuer to ask about adjusting your due date. Most providers also allow you to set up autopay from a verified checking account, ensuring you never miss a payment.
