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.

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.

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.

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.