You might say the earlier youâre able to pay something off, the better it will be for you in the long run. But does this hold true for credit cards?.
The short answer is yes, there can be benefits to paying your credit card early. But thereâs more to understanding how making credit card payments could help you boost your credit scores.
If you pay your credit card bill early instead of on time, you may get a few extra benefits. Even though paying your bills on time is usually fine, paying them off early can help your credit score, lower your interest rates, free up credit, and more. However, it also comes with some potential downsides to consider. This guide will show you when to pay early, why it’s a good idea, and how to get benefits for doing so.
When Should You Pay Your Credit Card Bill Early?
You have a couple options for paying your credit card early
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Before the Statement Closing Date: The statement closing date is usually about three weeks before your due date. This is when your monthly statement is finalized by the card issuer. If you pay before this date, your credit utilization will go up and your reported balance will go down with the credit bureaus.
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During the Grace Period: The grace period is the time between your statement closing date and your due date. Paying during this period won’t reduce your reported balance for credit scoring, but it ensures on-time payment.
So in short, pay early before the statement closing date to optimize credit scoring, or during the grace period to guarantee on-time payment while avoiding late fees. Just don’t pay too early in the cycle, or you could end up making duplicate payments.
Why Should You Consider Paying Early?
Here are some of the biggest reasons to pay your credit card early when you can
1. Improve Your Credit Utilization
Paying before your statement closing date can lower your credit utilization ratio, which is the percentage of your total credit limit that you’re using. Since credit utilization is a major factor in credit scoring, lowering your ratio can boost your scores over time.
Generally, try to keep your utilization below 30%. Pay early when your balance starts approaching that threshold.
2. Reduce Interest Charges
If you carry a balance month-to-month, paying early lowers your average daily balance for interest calculation purposes. This can reduce the amount of interest you pay on purchases.
For instance, a $1,000 balance paid on day 15 of the cycle accrues less interest than if paid on day 30. Pay early to minimize expensive interest fees.
3. Free Up Available Credit
If you pay early, you may be able to get credit for emergencies or new purchases. For instance, you might need to find a hotel or get a new fridge. Maintaining available credit ensures your card isn’t declined.
4. Ensure On-Time Payment
Paying early guarantees your payment won’t be late. Your credit card company won’t charge you late fees, and your credit report won’t have any bad marks that lower your score.
5. Develop Good Payment Habits
Making early payments helps ingrain responsible habits. You become more mindful of payment dates and proactive about managing balances. This discipline carries over to help manage other debts as well.
How to Take Advantage of Early Payment
Follow these tips to benefit from early credit card payment:
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Monitor your balances to anticipate when your credit utilization will exceed 30% or your credit limit.
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Pay before the statement date when your balance creeps up, to get the credit scoring advantages.
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Make multiple payments throughout the month to continually lower your balance if you can.
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Set payment reminders to pay during the grace period if you won’t pay pre-statement.
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Review statements carefully to ensure available credit for upcoming needs.
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Stick to a budget that aligns with your income and allows prepayment. Don’t overspend.
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Have a plan for high utilization months, like vacations, where you may strategically pay early or mid-cycle.
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Consider your cash flow so early payments don’t leave you short for other bills.
When Would Paying Early Not Make Sense?
While paying your credit card early provides some benefits, it isn’t always the best move. Here are some cases where it may not make financial sense:
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You pay your balance in full each month and keep utilization low anyway. Just pay by the due date.
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You have a 0% promotional APR. No need to pay early to save on interest.
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You’ll overdraft your checking account or otherwise lack the cash. Don’t pay early at the expense of missing other bills.
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You already have duplicate payment protections like autopay adjustments. Early payment may be redundant.
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You have late fees reversed regularly through goodwill adjustments. Paying early to avoid late fees may be unnecessary.
The bottom line is pay early strategically when the financial advantages make sense based on your credit and spending situation. Don’t pay early at the detriment of your broader budget and financial health.
Key Takeaways on Early Credit Card Payment
Paying your credit card bill early offers benefits like improved credit scores, lower interest, and more available credit. But it requires monitoring balances and statement dates closely to time payments right. Pay early when you can afford it and your credit situation would benefit. But don’t overextend your budget just to pay a credit card prematurely. Use early payments as a tool for optimizing credit and reducing interest rather than an obligation.
What happens if you pay your credit card early?
Making a payment on your credit card early will lower your current balance. Please keep in mind that if you pay your bill early and there is still a balance, you may still have to make a minimum payment on your monthly statement.
Paying your credit card early could help you avoid late fees
Making your minimum payment during the grace period means you wonât risk getting hit with a late payment fee.
To help with this, you can schedule credit card payments in advance, set up automatic payments or set a reminder on your phone. Your credit card company may also offer mobile solutions to help you pay on time or even early.
If you still owe money from the previous month, remember that any payment you make before the due date of your statement will go toward that balance. This means that you need to pay at least the minimum amount on your new bill even if you still owe money on old charges.
BEST Day to Pay your Credit Card Bill (Increase Credit Score)
FAQ
Is it better to pay credit card early or on time?
It’s generally better to pay off a credit card early rather than late for several reasons: Interest Savings: Credit cards typically charge high interest on outstanding balances. Paying off your balance early can help you avoid accruing interest, saving you money.
What is the 15-3 rule?
The Takeaway The 15/3 credit card payment rule is a strategy that involves making two payments each month to your credit card company. You make one payment 15 days before your statement is due and another payment three days before the due date.
How early should I pay my credit card bill to increase credit score?
The best time to pay a credit card bill is typically before the billing due date, ideally a few days ahead of time. If you pay before the due date, you will avoid late fees, interest charges, and possible damage to your credit score.
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.
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.
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. If you carry no balance on your card, a credit utilization score of 0% is less influential than one in the single digits.
When should I pay my credit card bill?
If you carry a balance on your credit card from month to month, or if your balance regularly exceeds 30% of your credit limit, you might benefit from paying early. When is the best time to pay your credit card bill? At the very least, you should pay your credit card bill by its due date every month.
Can you save money if you pay your credit card early?
Even if you only pay a portion of the card, or enough to cover your existing balance, you’ll still save on interest charges. Use a credit card payoff calculator to figure out how much you could save by paying your bill early. Does paying your credit card early help your credit score?
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.
Should you take care of a credit card bill early?
Taking care of a credit card bill early reduces the percentage of your available credit that you’re using. That’s good for your credit score. The credit utilization ratio measures what you owe on your credit cards as a percentage of your available credit.
