Why You May Want to Pay Off Your Card Balance Before the Due Date

by Christy Bieber | Published on Nov. 5, 2021

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Your credit score could be affected if you don't.

Paying off your credit card when the bill comes due is crucial to avoiding expensive interest charges. Most cards have high interest rates, but you won't have to pay finance charges if your balance is paid in full.

In some cases, however, you may actually want to pay off the amount due on your credit card before the due date on your statement. Here's why.

A good reason to pay off your credit card balance early

Paying off your credit card before your bill is due could be a smart financial move depending on two factors:

  • When your card issuer reports your balance to the credit reporting agencies
  • How high your balance is

See, many people charge a lot of their purchases on credit cards so they can earn rewards. This can be smart since you end up getting back a percentage of your purchase costs. But it can also lead to a high credit card balance -- at least until you make your payment and the debt is paid down.

The problem is, credit card companies don't always report information about your credit usage after you've paid your bill. And what can end up happening is that the company reports your balance when it is high -- even if you end up paying the total amount off within a matter of days or weeks.

When information about your credit usage is reported, the balance on your card and the minimum payment based on that balance is used to determine your credit score. And it's shown to other lenders who you may want to borrow money from. That can be a problem for a few reasons.

How a high balance can affect your credit score

When your credit score is calculated, the credit reporting agencies look at the credit you've used relative to the credit that is available to you. If your card company reports a high balance -- even if you end up paying it off shortly after it has been reported -- this can make it look like you have a high credit utilization ratio. That's the ratio of credit used relative to credit available. A ratio above 30% damages your credit score, while a lower credit utilization ratio can help you earn a higher credit score.

When you try to borrow, lenders also look at your debt relative to income. If you are showing a high credit card balance on your report, then this can make it look like you have a high monthly payment -- even if your balance was paid off shortly after it was reported to the credit agencies. This could affect how much you're approved to borrow.

If you don't want to take this hit to your credit score or jeopardize your borrowing abilities, you may want to find out when the credit card company reports your balance to the credit bureaus. Then, make your payment before that happens -- even if that's before the bill is actually due. You can ask your creditor this question or you can look at your credit report and see what balance is reported and figure out what date your card showed that balance.

By paying your bill ahead of schedule, you can make sure a lower balance is reported, preserving both your credit score and your low debt-to-income ratio so you appear to be a well-qualified borrower.

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