Updated
Credit cards can be useful tools when used wisely. But there's a lot of misinformation that can make it hard to figure out the right thing to do.
For example, when is the best time to pay off your credit card? As it turns out, paying your credit card bill early can have a lot of benefits. When timed correctly, an early payment could mean:
- No late fees
- Reduced interest fees
- Lower reported utilization
However, exactly how beneficial an early payment is can vary. It will depend on when you make the payment, as well as how much of your balance you pay off.
At minimum, pay your bill before your due date
You should always pay your credit card before your due date. You need to make at least the minimum required payment before your due date to avoid a late payment fee.
There's no benefit to waiting until the last minute. In fact, you should try to make your payment at least a few days before your due date in case of technical issues. Barring any problems, however, whether you pay two days early or two weeks early won't matter.
That said, there could be such a thing as making a card payment too early -- but we're talking really early. That's because making your payment before your statement period ends could get you in trouble in some cases.
Statement close date vs. billing due date
When you make your credit card payment, you're paying for charges you accrued in the past. In many cases, your due date could be three to six weeks after you actually made those charges.
The period during which you make your charges is called the statement period. Your issuer will send your bill once the statement period ends. Your due date will usually be 21 to 25 days after the end of the statement period.
For example, your statement period may be Nov. 1 to Nov. 30. In this case, Nov. 30 would be your statement close date. The bill for any charges you accrued during that period would likely be due by Dec. 21.
Any payments you make after your statement closes will be applied to that statement period. In the previous example, if you make a payment on Dec.15, it would apply to the November statement period.
However, if you made a payment on Nov. 15, it wouldn't count as a payment for the November billing cycle. Instead, it would count as a payment for the October period.
This would be fine provided you pay the balance in full and don't make any more charges before the November statement period ends. But if you have a balance on Nov. 30, you'll still get a bill in December. And you'll still need to make at least the minimum payment on that bill to avoid late fees.
How do early card payments reduce interest fees?
Most credit cards have a grace period on interest fees. This means if you pay your balance in full before your due date, you won't be charged interest on those purchases.
However, if you only make a partial payment, you'll be charged the interest fees for that statement period on your next bill. If you know you won't be able to pay your balance in full, an early payment may help reduce your interest fees.
How does it work? You may know that your credit card interest is based on the APR, or annual percentage rate. But while the interest rate is listed as an annual rate, your interest fees are calculated based on the daily rate.
The daily percentage rate is your APR divided by 365. So, if you have a 20% APR, the daily percentage rate would be: 0.2 / 365 = .00055 = 0.055%.
Every day, your balance is multiplied by the daily percentage rate to get your interest fee for that day. The fees are added up over the course of the statement period to get your total interest for that period.
So, if you make a credit card payment before the statement period ends, interest calculated after that payment will use the lower balance. This can reduce the overall interest you pay for that statement period.
How can paying a credit card bill early help your credit?
Your credit card balance itself doesn't impact your credit scores. But the amount of your available credit that balance makes up does impact your scores. This is called your credit utilization. And the percentage of your credit limit that you use is your credit utilization rate.
As an example, consider a credit card with a credit limit of $5,000. If the reported balance on that card is $1,000, the credit utilization rate would be: $1,000 / $5,000 = 0.2 = 20%.
Credit scoring models will penalize you for a high utilization rate. General rule of thumb is that anything above 30% will hurt your credit. Most experts agree that a utilization rate below 10% is ideal.
So, what do early payments have to do with all of this? Most credit card issuers report your balance information to the credit bureaus once a month -- often at the end of the statement period.
If you make a credit card payment before the close of the statement period, it can reduce the balance reported to the credit bureaus. This can, in turn, reduce your apparent utilization rate. If your previous utilization was higher, a reduced utilization rate could increase your credit scores.
Will 0% utilization hurt your credit?
There's a persistent theory among some credit experts and hobbyists that having 0% credit utilization reported to the credit bureaus across all of your cards can damage your credit score. In other words, the theory says that if you pay all of your credit cards in full before the end of your statement cycle, it could hurt your credit.
The idea is that some scoring models will see the 0% utilization as a sign that you're not using your cards. Creditors prefer you to use your revolving credit responsibly over not using it at all.
Although there are plenty of anecdotal stories and forum posts supporting the theory, there's very little concrete proof. None of the credit scoring companies have any official documents that suggest a 0% utilization will hurt your credit score.
If you're a "better safe than sorry" type, you can leave a small balance on one or two cards at the end of the statement cycle. Then, pay in full before your due date to avoid interest and late fees.
Still have questions?
Some other questions we've answered
FAQs
-
It's not a bad idea to pay your credit card bill early. Making a payment a few days, or even a couple weeks, before your due date can ensure you aren't late.
The only bad time to make a card payment is after the due date. Paying late can result in late fees. And if you fall behind by more than 30 days, the card issuer could report your late payment to the credit bureaus. A late payment on your credit report can cause significant damage to your credit score.
-
Most credit card issuers don't cap how many credit card payments you can make in a month. If you want to make a payment every two weeks when you get paid, go for it.
That being said, there's little appreciable benefit to making an excessive number of payments. For example, you don't need to make a payment each time you make a purchase.
-
Paying your credit card balance in full before your due date is the best way to avoid interest. If you're going to carry a balance beyond your due date, an early payment could reduce how much interest you pay. However, you'll need to make the payment before the end of your statement period for it to be effective. Don't forget you'll also need to make at least your minimum payment once the statement period ends.
Our Credit Cards Expert
Brittney started her writing career in the world of science, putting her physics degree to good use. Her journey into finance started with building her personal credit, but soon grew into a borderline obsession with credit cards and travel rewards. For the last 7 years, she has enjoyed the ability to share her expertise with readers, as well as the opportunity to interview companies and individuals making an impact on our financial lives. She wholly believe most problems can be solved with the right research -- and a good spreadsheet -- and she specializes in translating complex financial topics into actionable advice to help educate and empower readers.
Share This Page
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.