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Paying your credit card bill before its monthly due date, or making extra credit card payments each month, could have some surprising benefits for your credit score. Here's the rundown on how it all works.
Should I Pay My Credit Card Early?
You probably already know how important it is to make your credit card payments by their due date every month. That's because late payments can hurt your credit score more than any other factor.
What you might not know is the fact that shifting your payment schedule ahead by a week or two can actually help your credit score. The reason has to do with the nature of credit card billing cycles, and their relationship to your credit report.
Will Paying My Credit Card Bill Early Affect My Credit?
There's a persistent misconception that carrying a credit card balance from month to month can help you improve your credit score. That's simply not true. Paying your balance in full will not harm your credit score, and carrying a balance typically means you pay interest charges, so it's best to pay off your balance each month if you can afford to do so.
Furthermore, carrying a balance that exceeds about 30% of a card's borrowing limit (also known as 30% utilization), can actually pull your credit score down, which you should avoid whenever possible.
That brings up the potential benefits of paying your credit card bill ahead of schedule. If you make a payment to your account before your card's statement closing date, instead of on or before its payment due date, you can lower the utilization percentage used to calculate your credit score. Here's how it works.
The statement closing date (the last day of your billing cycle) typically occurs about 21 days before your payment due date. Several important things happen on your statement closing date:
- Your monthly interest charge and minimum payment are calculated.
- Your statement, or bill, is generated and posted to your online account management page (and mailed to you, if you haven't opted for paperless billing).
- Your outstanding balance at the end of the billing cycle is recorded and eventually reported to the national credit bureaus—Experian, TransUnion and Equifax.
Each card issuer reports to the bureaus on different schedules, and information is often released in a staggered fashion: first to one bureau, then the next, and finally to the third. As a result, bureaus seldom have identical data on all your accounts, which is why a credit score based on data from one bureau will differ on any given day from a score calculated the same day using data from another credit bureau.
By making a payment before your statement closing date, you reduce the total balance the card issuer reports to the credit bureaus. That in turn lowers the credit utilization percentage used when calculating your credit score that month. Lower utilization is good for your credit score, especially if your payment prevents the utilization from getting close to or exceeding 30% of your total credit limit.
Even better, if your card issuer uses the adjusted-balance method for calculating your finance charges, making a payment right before your statement closing date can save you money. The adjusted-balance method bases your interest charge on your outstanding balance at the close of the billing cycle, so a last minute payment can make a big difference in your finance charges for that period. (If your card issuer uses the more common average daily balance method, which adds up your balances on each day of the billing cycle and divides the sum by the number of days in the cycle, payments made right before the statement closing date have less impact on finance charges.)
Understand Your Billing Cycle
The imprecision in noting that your payment due date is about 21 days before your payment due date has to do with a discrepancy between billing cycles and payment dates. The law requires that your bill be due on the same date each month, and of course the number of days in each month varies, but the number of days in each credit billing cycle is the same. Different card issuers use cycles of anywhere from 28 to 31 days.
You can check the length of your card's billing cycle in your cardholder agreement, or simply calculate the number of days between the start and end dates for the billing period listed on your card statement. The next statement closing date will be that many days from the billing period end date, no matter when your next payment is due.
The grace period for payments on most credit cards means you pay no interest charges as long as you pay the full amount that appears on your account statement each month. If you can afford to pay your balance in full every month, doing so before your monthly statement closing date has the benefit of ensuring that no outstanding card balance is reported to the credit bureaus—which can boost your credit scores.
When "Early" Payments Should Be "Extra" Payments
It's critical to note that "early" payments made before your statement closing date apply to the billing cycle in which you make them. If your payment eliminates your entire balance, that's fine, but if a balance remains, you'll still have to make a minimum payment by the due date listed on your next statement to avoid being considered late on your bill.
For that reason, if you routinely carry credit card balances from month to month, it may be better to think of pre-closing date payments as extra payments, rather than early ones. Making multiple payments to credit card accounts is a time-honored approach to keeping a lid on your debts and promoting good credit scores.
When Is the Best Time to Pay My Credit Card Bill?
The only bad time to pay your credit card bill is after your payment is due—a mistake that can have significant negative repercussions for your credit score. But paying your bill in full before your statement closing date, or making an extra payment if you'll be carrying a balance into the next month, can help you cultivate a higher credit score by reducing the utilization recorded on your credit report—and save you some finance charges to boot.