Paying your credit card bill before its monthly due date, and making more credit card payments every month, can have the most surprising benefits for your credit score.
You likely know how important it’s to make your credit card payments by their due date each month. That is because late payments can hurt your credit score further than any other factor.
What you probably don’t know is the fact that shifting your payment schedule ahead by a week or two can help your credit score.
The Benefits of Early Credit Card Payments
Making your credit card payment early can benefit your credit score in terms of your credit use, by reducing the credit card balance that is reported to the credit bureaus. The balance sent to the credit bureaus is frequently your balance as of the statement closing date. That date is the last date of your credit card billing cycle and does not essentially coincide with the end of the calendar month.
Paying your balance before the statement closes can help your credit score in terms of the amount of debt you’ve reported, but keep in mind, paying too early will result in late fees if you will miss the next payment.
Sending your credit card payment early can help you save interest. If your credit card issuer uses either the average everyday balance and everyday balance method, reducing your balance earlier in the billing cycle lowers the balance used to calculate your finance charge.
Paying early means less interest
First things first: If you pay your credit card balance in full each month, you would not have to worry about interest.
That is because issuers give paid-in-full accounts an interest-free grace period, which lasts unless the next due date. If you are not going to pay the full amount, then pay what you may as far ahead of the due date as you can. Your interest charge is calculated using your average everyday balance during the billing period. When you pay ahead of your due date, you decrease your average everyday balance.
Early payments can improve credit
Taking care of a credit card bill early decreases the percentage of your available credit that you are using. That is better for your credit score. The credit use ratio measures what you owe on your credit cards as a percentage of your available credit.
For instance, if you have one credit card with a $10,000 limit as well as a $9,000 balance, your credit use will be 90 percent. Credit scoring models consider it a bad sign when you use a big amount of your available credit since that can signal financial trouble. In general, using less than 30 percent of available credit is preferable, and using less than 10 percent is ideal. Your credit card info is reported to credit bureaus around your statement date. That is the day your statement is prepared and sent to you. Paying early, before your statement is prepared, can decrease the balance reported to the bureaus and therefore the use ratio used in your credit scores.
Does paying the credit card early help your credit score?
Paying your credit card early can help your credit score in surprising ways!
The 3 major credit bureaus, Equifax, Transunion, Experian – that evaluate your credit usage to determine your credit score do not care whether you pay your bill early. That info is not seen on your credit report at all. But Experian, TransUnion, or Equifax do consider the balances on your credit cards when calculating your credit score. And there is a catch: No one knows when the credit card companies report that info to the credit bureaus.
Let us say you have a credit card with a $4,000 limit.
You buying a refrigerator for $2,500. If the credit card company reports your balance to the credit bureaus the next day, you will have a credit use ratio of 62.5 percent, further than double the 30% credit utilization lots of experts recommend. Credit use makes up 30% of your credit score, so it helps to keep this number as low as possible. To minimize the odds of getting hammered with a higher credit use figure, pay your credit card bill as early as possible after making a big purchase.
Do you love learning about ways to improve your credit score? We recommend you read: The Deciding Factors of Your Credit Score
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