Should You Make Your Credit Card Payment Early?

Should You Make Your Credit Card Payment Early?

Should You Make Your Credit Card Payment Early?
Reading Time: 6 minutes

The general rule of thumb is that you should always settle your credit card bill by the due date, but are there any benefits to making payment sooner? While it would seem to go against all common sense to make your credit card payment well before the due date, pushing your payment schedule back by a week or two before the due date may actually work in your credit score’s favor.

However, due to the nature of credit card billing cycles and how they impact your credit report, paying early may not be completely necessary to remain in good standing with your creditors.

Today, our Wizards explain when it makes sense to pay your credit card balance early and how the timing of your payment impacts your credit score.

When is the Best Time to Pay My Credit Card Bill?

The only bad time to make your credit card payment is after the due date. Any other time works fine. Making late payments could have adverse repercussions for your credit score.

Strive to pay your bill in full before the statement closing date or make an extra payment if you’ll be carrying a balance into the following month. This will help you cultivate a higher FICO score—by reducing the utilization rate recorded on your credit report—and shave off some interest charges to boot. A higher score helps lenders determine the likelihood of your repaying a loan. This, in turn, affects how much you can borrow, how many months you have to repay, and how much it will cost (the interest rate). Let’s explore these benefits below.

Paying Early Means Less Interest

Paying your credit card in full before the statement closes means you won’t have to worry about paying any interest—unless you’ve been paying down a carried balance over several months. Most credit card issuers entice their customers with an interest-free grace period for paying their accounts in full before the statement due date.

Credit card companies may calculate the monthly interest charges on your credit card in two ways: the adjusted balance method and the average daily balance method.

If your card issuer uses the adjusted balance method, you can reduce the charge by making a last-minute payment a few days before the statement closing date. Since this method uses your outstanding balance on the closing date to calculate the interest, minimizing this balance will lower your interest charges.  

If your card issuer calculates interest charges using the average daily balance method—which is more common—making an early payment will help reduce your interest charges by a smaller margin. This is because this method sums up all the daily balances throughout the billing cycle and then divides the total amount by the number of days in the cycle. Paying your balance ahead of the due date reduces your average daily balance and, consequently, the interest charges.

You can also shave off more interest charges on your balance by adopting a pay-as-you-go strategy, which means making multiple payments during the course of your card billing cycle.

Early Payments Can Improve Credit

When your statement period closes and your card issuer sends a statement, the balance is usually reported to the major credit bureaus as a debt—even if you’re able to avoid interest by settling your balance in full by the due date.

Making a credit card payment before the statement closing date reduces the total balance that your card issuer reports to the credit agencies. This will, in turn, lower your credit utilization percentage when your credit score for that month is worked out. A lower utilization rate is good for your credit score, particularly if the payment prevents the utilization rate from coming close to, or going over, 30% of your total credit limit.

The main reason why you should strive to keep your utilization percentage as low as possible is that different issuers report this figure to credit bureaus on different days of the month, which are not necessarily the same as your credit card payment’s due date. If you’re not careful, and wait until it’s too late, your card issuer may end up submitting a higher utilization percentage for the billing period even though the payment isn’t yet due. This may negatively impact your credit score even if you clear the entire balance on time.

Paying Early Clears Room for Other Needs

Paying your credit card bill early helps clear your available credit. Since credit card issuers place a limit on the total amount you can charge on your card, making payments early clears room for future spending. Reducing your credit card bill with early payments means that you can afford to make more purchases in the future using the same card and without the risk of surpassing the credit limit.

Most issuers normally charge hefty fees for going over the credit limit. Some issuers will even go as far as reducing your credit limit or suspending your account altogether. Your interest rates could also soar if your credit history shows that you habitually exceed your credit limit. If you realize that you’re close to maxing out your limit, pay down your balance to increase your available line of credit.

Can You Send Your Payment Too Early?

When it comes to making early credit card payments, it’s essential that you get your statement closing date and billing cycle right. Any early payment—payments made just before the statement closing date—must apply to the billing cycle in which you make them. If your payment clears the entire balance on your credit card, you don’t have to worry about it being made too early.

However, if a balance remains after making the payment, your early payment will be treated as an “extra” payment on what you owe. As such, you’ll still need to make a minimum monthly payment before the due date indicated on the next statement. Otherwise, you risk being flagged for late payment of the bill.

With that in mind, if you normally carry balances on your card from month to month, it’s recommended that you consider all early payments as “extra” payments made toward reducing your debt. It’s worth noting that many credit card holders normally use extra payments to manage their credit card debt, and through them, maintain good credit scores.

Reasons You Might Not Want to Pay Your Bill Early

In some instances, you may be better off not paying early. For starters, if after making an early payment you risk not having enough liquid cash to cater for your everyday needs, it may be worthwhile to avoid paying the bill—at least until you have more cash in hand or at the bank.

If you’ve just got your card and the zero-interest period on the card balance is yet to expire, you may be better off avoiding early payment of your credit card bill. Instead, you could leave the money to continue collecting interest in a savings account.

Takeaway

To enjoy the full benefits of paying your credit card bill early, always ensure that the payment is made within the current billing cycle; otherwise, you may have to make a minimum payment before the payment due date of your next statement. If you fail to do so, you’ll be flagged for late payment.

And if you struggle to have cash in hand when your bill due date comes around, most credit card issuers will let you change the day your statement closes. This lets you choose a day that works best for you—maybe switch it closer to the day you get paid—which may help you make full payments each month.

If you regularly fall behind on your credit card payments, you’ll want to consider a 0% APR credit card so that you can pay off the debt over time with greater flexibility on when your entire balance is due.

Frequently Asked Questions

How many days before the due date should I pay my credit card?

Paying your credit card bill on time is the perfect way to get in your credit card issuer’s good books and build a better score. We recommend paying your credit card bill two to five days before the due date, more so if you’ll be mailing your credit card bill. It’s the only way to ensure the payment arrives on time. Sending it too close to the due date puts you at risk of late payment.

Is it bad to pay your credit card multiple times a month?

Making multiple credit card payments in a month isn’t bad. In fact, making more than one payment a month keeps your balance low, which in turn reflects a lower credit utilization rate. And since credit card issuers will typically report your credit activity to the credit bureaus, paying off a portion of your balance can benefit your credit score.

To make multiple payments in a month, you’ll need to set up automatic payments or instant online payments from your bank account. This way, you’ll continually avoid the high balance on your credit card.

What happens if I pay more than the minimum amount on my credit card?

You must pay at least the minimum credit card bill amount to be considered “on time” and avoid late fees and other penalties. However, paying more than the minimum amount may work in your favor in the following ways:

  • When you pay more than the minimum on your credit card, it will take a shorter time to pay off your balance.
  • Paying more than the minimum reduces your overall credit utilization ratio, which makes up about 30% of your credit score.
  • You save money since a lower balance incurs lower rolling interest charges.

It’s best to pay our credit card balance in full each month. Ideally, you should charge only what you can afford to pay off every month. Leaving a balance will not help your credit scores—it will just cost you money in the form of interest.

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