6 Min Read | Published: August 5, 2024
Should I Pay My Credit Card Early?
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.
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
At-A-Glance
Paying your entire credit card balance every month keeps credit utilization down, which can help to improve your credit score.
Your payment history comprises an estimated 35% of your FICO® Score and is a major factor in its calculation.
Making an early or extra payment on your credit card can help you reduce certain interest charges and avoid late fees.
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.
Should I Pay My Credit Card Early?
Paying your credit card’s full statement balance early can be a great strategy that could help you save on interest. It can also help lower your credit utilization ratio, which may positively impact your credit score. Paying your credit card early can also help ensure that your payment isn’t forgotten, which could result in late fees and may also negatively impact your credit.
Understanding billing cycles and their relation to payment due dates can help to highlight how credit card payments work. Your billing cycle is typically a 28 to 31-day period when your monthly credit card transactions are recorded. The due date is typically 21 days after the billing cycle closes, but this will vary depending on the credit card issuer.1
Your payment is on time if you make it before the due date. However, if you make it before the closing date, then your reported credit utilization may be lower.2 So paying your credit card statement early could benefit both your wallet, and credit.
Does Paying Your Credit Card Early Impact Your Credit?
Credit utilization falls under the “Amounts Owed” portion of the FICO® scoring system (which is a credit score created by the Fair Isaac Corporation). That category is worth an estimated 30% of your overall score. “Payment History,” where on-time and late payments are tracked, is worth an estimated 35% of your score. Late payments negatively impact both categories. Paying early can have a positive impact on your credit score.
The FICO scoring system makes it clear that paying off the entire balance of your credit card each month cannot negatively impact your credit score. On the contrary, if you make the payment before the end of the billing cycle you can reduce your credit utilization to zero.
Paying only the minimum amount due each month, on the other hand, may negatively impact your credit score if you are carrying a high balance.
Benefits of Paying Your Credit Card Early
A potential drawback to paying your credit card early is that it reduces your liquidity. However, the benefits typically far outweigh that minor inconvenience. Making payments before the due date can help your credit score, can save you money, and simplifies your financial management. Here’s a look at how this breaks down:
- Could Help Your Credit Score
Paying your credit card early could reduce your credit utilization and lower your credit score. Utilization and payment history are primary factors in calculating your FICO Score. Paying early can impact both areas.
- Can Help You Save on Interest
Paying the balance off means you won’t have to pay interest (on most purchases). Credit card companies don’t charge interest on most transactions if you pay the full balance before the due date.3 It’s important to note, however, that interest will still apply for certain transactions, such as cash advances and balance transfers.
- Can Help You Avoid Late Fees
Paying your credit card early could help you avoid late fees. Many cardholders put their payments on autopay to ensure they’re never late or miss a payment. This can also help your credit score because late payments can cause a credit score reduction.
When Is the Best Time to Pay Your Credit Card Bill?
The best time to pay your credit card bill is before the last day of the billing cycle. That’s before the credit card companies can send a monthly update to the credit bureaus. Paying during the billing cycle also ensures that your payment will register on the current month’s statement, which may help your credit score.
The worst time to pay your credit card bill is after the due date. That will generate a late fee and a negative report to the credit bureaus. Those stay on your credit report for a long time (up to seven years, in some cases),4 so you want to avoid them at all costs. If you can’t pay your credit card bill during the billing cycle, make sure you pay it before the due date.
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 Takeaway
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
2 “What’s in my FICO® Scores?,” myFICO
3 “Understanding Credit Card Interest,” Investopedia
4 “Can You Remove Late Payments from Your Credit Reports?,” Equifax
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.
Related Articles
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.
How Does Credit Card Processing Work?
Credit card processing is much more intricate than it may seem. Discover what happens behind the scenes within seconds of your transaction.
How to Use Credit Cards Effectively As Money Management Tools
Discover the ways to use credit cards for budget tracking, wealth building, and maximizing rewards. Using credit cards wisely can improve your financial credibility.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
