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Wondering if you should pay your credit card early? This can be a great approach and could benefit your credit score. See what happens when you pay early.
When it comes to making your credit card payment, you may be wondering when the best time to pay it is. There are several myths circulating today about how credit card payments work. One is that paying your entire balance every month is bad. Another is that making only your minimum monthly payment due is the best way to improve your credit score. In this article, we’ll explain why neither of these statements is true, discuss the best time to make credit card payments, and show you why paying your credit card on time is so important.
Paying your credit card bill early can have several benefits. It can help improve your credit score, allow you to avoid interest charges, and free up your available credit. However, it also has some potential downsides to consider This comprehensive guide will explain when you should pay your credit card bill early, the pros and cons of doing so, and how it can impact your finances
What Does It Mean to Pay Your Credit Card Bill Early?
Paying your credit card bill early simply means making a payment before the due date on your statement. For example, if your bill is due on the 25th of the month, paying it on the 10th would constitute paying early.
You can pay as much or as little of your balance early as you want. Some people choose to pay the minimum payment early, while others pay off the entire balance before the due date. The main thing is that you are paying earlier than required.
When Should You Consider Paying Early?
Here are some of the most common situations when it makes sense to pay your credit card bill ahead of time
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You want to improve your credit utilization ratio: Your credit utilization ratio is the percentage of your total available credit that you are using. For example, if you have a $10,000 credit limit and a $2,000 balance, your utilization is 20%. Experts recommend keeping this below 30%. Paying early can help lower the balance that gets reported to the credit bureaus and improve your ratio.
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You want to avoid interest charges Most credit cards charge interest daily starting on the day a purchase is made. By paying early you can minimize the interest that accrues. This is especially helpful if you cannot pay off the full balance.
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You are close to your credit limit: Paying early frees up credit that you can then utilize if needed, without exceeding your limit. Going over your limit results in fees and other potential credit score impacts.
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You want to build positive payment history: Payment history is the biggest factor in your credit score. Paying early helps ensure on-time payments are always reported to the credit bureaus.
The Potential Benefits of Paying Your Credit Card Bill Early
Let’s look at some of the advantages that can come with paying your credit card early:
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Improve your credit score: As mentioned above, lowering your credit utilization can help boost your credit score over time. This is because utilization makes up 30% of your FICO score calculation. Every little bit helps.
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Avoid late fees: Paying early guarantees your payment will not be late, saving you from any late penalty fees. These fees are usually around $30.
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Lower interest charges: The earlier you pay, the less interest you accumulate each day your balance remains unpaid. This adds up substantially over years of credit card use.
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Free up credit: Getting your balance lower early frees up available credit that you can utilize if an emergency expense comes up before your statement closes. This prevents potential over-the-limit fees or other issues from exceeding your limit.
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Build positive payment history: Every on-time payment helps build your payment history and credit score. Paying early helps ensure payments are always on-time.
When Might Paying Your Credit Card Bill Early Be a Bad Idea?
Despite the many benefits listed above, there are a few potential downsides to paying your credit card early that should be considered:
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You may overdraft your bank account: If paying early leaves you short on cash before your next payday, you could risk overdrafting your checking account and incurring fees. Always check your balance first.
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You’ll need to pause autopay settings: If you have autopay set up for the due date, you’ll need to temporarily stop it to avoid double payments when paying early manually. Don’t forget to restart it.
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You lose float time: Paying early means you lose the float period between when you pay and your due date. For some, this float time is beneficial for managing cash flows.
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It can be easy to overspend: Having lower balances can tempt some people to overspend. Stick to a detailed budget and spending plan.
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Multiple payments can complicate budgets: If making multiple early payments, it requires more budget vigilance to ensure you have enough set aside for each one.
Overall, as long as you pay attention to your bank balance and plan accordingly, the positives tend to outweigh these potential negatives for most credit card users.
How Does Paying Your Credit Card Bill Early Impact Your Credit Score?
As noted earlier, paying your credit card early can lower your credit utilization ratio, and this directly impacts your score. Here is a detailed look at how it affects your credit:
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Payment history: Paying early builds positive payment history, the biggest scoring factor at 35% of your FICO score. Every on-time payment helps.
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Credit utilization: Lowering your balance lowers utilization, which is the second biggest factor at 30% of your score. This can boost your score over time.
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Credit mix: Lower balances improve your overall credit mix between revolving (credit cards) and non-revolving accounts. This mix accounts for 10% of your score.
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New credit applications: Paying early does not affect this factor, which makes up 10% of your score.
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Credit history length: Again, paying early does not impact the length of your credit history, which is 15% of your FICO score.
Tips for Paying Your Credit Card Bill Early
If you’ve decided paying your credit card bill early aligns with your financial goals, here are some tips to do it successfully:
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Review your budget first to ensure you have enough funds to pay early without overdrafting.
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Be aware of your autopay settings and temporarily pause them to avoid duplicate payments.
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Consider making multiple smaller payments throughout the month rather than one large one if that fits your cash flow better.
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Pay down your highest interest rate card first if you cannot pay all balances early.
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Set payment reminders on your phone calendar so you remember to pay early each month.
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If possible, pay early enough to lower your utilization before your statement period ends.
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Pay at least a few days before the due date in case of processing delays that could cause a late payment.
The Bottom Line
Paying your credit card bill early can be a savvy financial move that saves on interest, avoids late fees, and boosts your credit score. However, you do need to be mindful of your bank balance and budget to prevent cash flow issues or overspending.
Ideally, work towards paying off cards in full each month to get the most benefit. But even if that is not possible for you, paying early helps minimize interest fees. Just be sure to analyze your specific situation to determine if it aligns with your budget and financial habits before paying early.
Frequently Asked Questions
Paying off a credit card early is a smart move. This can reduce the interest you’ll need to pay. You won’t need to pay any interest on most transactions if you pay your full balance on time every month. Although interest for certain transactions, such as cash advances and balance transfers, will still apply.
Paying the minimum balance due will keep your credit card account current. Paying more than the minimum balance, though, offers more benefits. This reduces your credit utilization rate, which can help to improve your credit score. It can also help you to save on interest.
The only drawback to paying your credit cards early is reduced liquidity. Pay your full outstanding balance when you can to avoid interest charges and lower your credit utilization ratio. Consider making payments early to avoid late charges. These habits may help your credit score and improve your financial health.
1 “Statement Closing Date vs. Payment Due Date,” The Balance
3 “Understanding Credit Card Interest,” Investopedia
4 “Can You Remove Late Payments from Your Credit Reports?,” Equifax
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Kevin D. Flynn is a financial services provider, business coach, and financial writer. He lives in Leominster, Massachusetts, with his wife Evelyn, two cats, and ten wonderful grandchildren. All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
How and When to Pay Your Credit Card Bill
It’s important to pay your credit card bill in full—and on time—each month. Avoid fees, and optimize your credit score, Here’s what you need to know.
BEST Day to Pay your Credit Card Bill (Increase Credit Score)
FAQ
What happens if I pay my credit card bill early?
Paying your credit card early reduces the interest you’re charged. If you don’t pay off your credit card balance in full, you’ll be charged interest every day for the next month based on your daily balance. In other words, if you pay some or all of your bill early, your daily balance will go down and your interest payments will go down too.
What if I pay my credit card bill in advance?
Yes, you can pay your credit card bill before the statement is generated. Making early payments reduces your outstanding balance, lowers credit utilisation, and can help avoid interest charges. It also frees up your credit limit for further use.
Do I get points if I pay my credit card early?
Do you still get points if you pay your credit card early? Yes. If your credit card earns points based on how much you spend, you won’t lose those points if you pay your bill early.
Is it bad to pay off a credit card too fast?
You can help keep your credit utilization rate below the preferred 30% mark and raise your credit score by paying off your debt quickly after it’s charged. If you pay early, you can also avoid late fees and extra interest charges on any balance you would have had to carry.
What happens if you pay your bill early?
You lower your credit utilization when you pay your bill early, which can help your credit score. Similarly, paying your bill early can mean you’re not taking full advantage of certain situations. There is no need for a credit utilization score of 200 if you have no balance on your card. A score in the single digits is more important.
Should I pay my credit card early?
Important points: If you pay off your credit card early, you either pay off the whole balance before the due date or make an extra payment every month. If you make an extra payment or pay before the due date on your statement, you may be able to lower your credit utilization ratio.
When should I pay my credit card bill?
It’s a good idea to pay your credit card bill on time and in full each month. If your credit card charges interest on any balance carried over, costs can add up quickly. You should make at least the minimum payment on time if you can’t pay off your card in full. This will help you avoid fees and keep your account in good standing.
Does paying your credit card early affect your credit score?
Paying your credit card early does not directly affect your credit score, but can still positively influence it. You lower your credit utilization when you pay your bill early, which can help your credit score. Similarly, paying your bill early can mean you’re not taking full advantage of certain situations.
What if I can’t pay my credit card bill?
You can still save money if you pay your bill before the statement closing date, even if you can’t pay it all at once. If you do this, your card issuer may report a lower account balance to the credit bureaus. This could help your credit score and lower the interest rate you pay on the balance you still owe.
Should you pay your credit card bill in full a month?
High credit score achievers typically maintain a credit utilization ratio below 10%. If you pay off your credit card balance in full every month, you won’t have to pay any interest. There will also be no balance to carry over to the next month.
