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.
Paying your credit card bill early can seem counterintuitive. Why pay early if you can keep your money for longer? But there are some good reasons to pay early that you should think about. We’ll talk about the pros and cons of paying your credit card bill early in this article.
What Does It Mean To Pay Early?
When you pay your credit card bill early, you just make a payment before the due date. For example:
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You make your monthly payment a few days after receiving your statement but before the due date
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You make an additional payment mid-cycle, before the billing cycle closes.
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You pay off your entire balance as soon as the charges post to your account.
As long as you pay the minimum by the due date, your payment history will show as on-time. Anything earlier is considered early payment.
Is Early Payment Required?
Paying early is entirely optional. You are not required to pay your bill before the due date. As long as you make at least the minimum payment by the due date each month, you’ll avoid late fees and negative credit reporting.
Some reasons you may want to pay early include:
- Avoiding interest charges
- Lowering your credit utilization
- Freeing up credit
- Building positive payment history
However, early payment is not mandatory. You can pay by the due date and still be in good standing.
What Are The Benefits Of Early Payment?
While not required, paying your credit card bill early can provide some advantages:
Lower Interest Charges
If you have a balance, daily interest is added based on your APR. When you pay early in the billing cycle, the average daily balance that is used to figure interest goes down. This lowers your total interest costs for that cycle.
Improve Credit Utilization
Early payment lowers your balance faster, which reduces your credit utilization rate. Since utilization makes up 30% of your credit score, this can help improve your credit over time.
Free Up Credit
An early payment frees up credit on your account, restoring available credit for purchases or emergencies. This prevents maxing out your limit or incurring over-limit fees.
Demonstrate Responsible Behavior
When lenders review your credit report, they look for responsible payment habits. Early payment shows you actively manage your account, rather than making the minimum just before due dates.
Are There Any Drawbacks To Early Payment?
The main potential downside of early credit card payment is:
Reduced Liquidity
That money leaves your bank account right away when you pay your bill early. As a result, you have less cash on hand for everyday spending or financial emergencies.
However, as long as you budget appropriately, this drawback is minimal. As part of your monthly budget, account for making payments a bit early to avoid any cash flow issues.
When Should You Pay Early?
Generally, aim to make payments within the grace period after the statement cuts but before the due date. This prevents late fees while giving you a few weeks before the payment processes.
You can also make an additional payment mid-cycle to lower your balance faster. For the full benefits, pay off your entire statement balance early each month. Just be sure to account for the outflow of funds in your budget.
Key Takeaways
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Paying your credit card bill early means making a payment before the due date. This can include right after the statement cuts or mid-cycle.
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Early payment is optional but can provide benefits like lower interest, improved credit, and restored available credit.
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The main drawback is potentially reduced short-term liquidity. However, with proper budgeting, this is easy to address.
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For the most benefits, pay off your full statement balance early each month. But even smaller additional payments can help.
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Time payments within the grace period to avoid late fees while giving yourself a few weeks before the money leaves your account.
Overall, early credit card payment demonstrates responsible usage and can gradually improve your credit standing. Pay early when possible, but always make sure to pay at least the minimum by the due date. With smart budgeting to account for the cash outflow, early payment poses little downside.
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.
Credit card APR may not matter if you pay on time and in full
There is a good chance that your credit card company will charge you interest if you carry a balance from month to month. You may only have to pay interest on any balances that are carried over to the next month, though.
This means paying your credit card balance in full every billing cycle can help you pay less in interest than if you carry over your balance month after month. But if you canât pay your balance in full, the CFPB recommends paying as much as possible: âThe higher the balance you carry from month to month, the more interest you pay.â
If you make an early payment before your billing cycle ends, you may be able to reduce your interest charges, even if you donât pay off your entire balance. In fact, every little bit youâre able to pay toward a balance youâre carrying can help you chip away at what you owe. A credit card payoff calculatorâlike the one belowâcan be a useful tool to help you figure out how much you might be able to save.
Should You Pay Off Credit Card IMMEDIATELY After EVERY Purchase to Raise Credit Score?
FAQ
Does paying your credit card early hurt your credit?
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.
Is it bad to pay a credit card before a statement?
It can be helpful to pay early when you’re getting close to your credit limit and interest fees could push you over. If that happens, you may incur an over-the-limit fee from your credit card company. Some issuers may even lower your credit limit or suspend your account until your balance is paid down.
Is it better to pay your credit card bill early or on the due date?
To avoid paying interest and late fees, you’ll need to pay your bill by the due date. But if you want to improve your credit score, the best time to make a payment is probably before your statement closing date, whenever your debt-to-credit ratio begins to climb too high.
Is it bad to pay your credit card multiple times a month?
When you make several payments in a month, you lower the amount of credit you’re using compared to your credit limits. This is good for your credit score. Credit card information is usually reported to credit bureaus around your statement date.
