The best time to pay your credit card bill is before its monthly due date—but did you know that timing your payment earlier can impact your credit scores and lessen interest?
Let’s explore the nuances of the credit card billing cycle to know when to pay your credit card bill and make better financial decisions.
When you’re close to a 30% credit utilization rate
Paying your credit card at the right time can bring an increase to your credit.
The trick is to pay your bill when you’re close to using up 30% of your credit.
How much credit you use is a big deal—it accounts for 30% of your FICO score.
To calculate your utilization rate, divide your total balance by your credit limit. Then, convert it to a percentage. So, for instance, if you have a $5,000 credit balance with a $10,000 limit, your credit utilization would be 50%.
Using too much of your available credit is a red flag, suggesting that you’re facing potential financial difficulties.
So, it’s best to keep this rate low–ideally below 30%.
Higher than that can hurt your credit score.
But even if it does, you can always recover by reducing your utilization rate in the next month.
Before the reporting date
Credit bureaus receive your credit reports from your credit card issuer once a month during the reporting date.
If, for example, your payment is due on the 20th, but your issuer reports on the 15th, a $5,000 balance on the 15th could result in a 50% utilization, affecting your credit score even if you pay it off shortly after.
While the reporting date isn’t explicitly stated on your bill, it’s usually around your due date.
So, paying your bills before the due date can help you build a more favorable credit report and enhance your creditworthiness.
After paying essential expenses
Another good time to pay your credit card bill is when you’ve already paid your essential monthly expenses and still have some extra money left over.
Essential expenses may include:
- Groceries
- Transportation / Gas
- Electric bills
- Utility bills
Instead of spending your extra cash on something that may not be necessary or urgent, use it instead to pay off some of your outstanding credit card balance early.
This way, you can save on interest payments and other fees over time.
Making early payments is also a helpful way to manage your multiple credit cards and other financial obligations.
As early as possible before the due date
The best way to pay your credit card and avoid interest is by paying them in full and as early as possible before it’s due.
Experian reported an increase in credit card debt in the consumer credit market because more people are carrying their debt from one month to the next.
So, while all you have to pay is at least the minimum amount by the due date, you’re still better off paying your balance fully every month. This allows you to lessen how much you pay for interest.
But if that’s not possible for your current situation, you can still lower your interest by settling your credit card bill a bit early.
Card issuers charge compounded interest every day, and this can really add up fast.
Therefore, if you pay even just a few days before the deadline, you can lower those annoying interest charges and save some more money.
Here’s an example. Suppose you start your 30-day billing month with a balance of $1200:
- If you pay $500 on the last day of the month, your balance is $1,200 for 29 days and $700 for one day. This sets your average daily balance at roughly $1,183. If your credit card has a 15% interest rate, your monthly interest charge would be approximately $14.79.
- Now, shift that $500 payment halfway through the month. Your balance is $1,200 for 15 days and $700 for 15 days. Your average daily balance drops to $950, and your interest charge shrinks to $11.88. You’ve cut your interest payment by over one-fifth by simply nudging up your payment date.
Paying early before the due date can also help you avoid late fees.
In a 2022 report by the Consumer Financial Protection Bureau (CGPB), late payment fees were the fees that were most commonly charged by credit card companies–totaling $14.5 billion.
These late payments can have several consequences and, ultimately, damage your credit score.
The later your payment is and the higher your credit score is, the more harm a missed or late payment can do.
In fact, if you currently have a “good” credit score but you make a late payment, your score can see a drop of more than 50 points.
Cushion is an intuitive money management app that can help you build your credit history and avoid late fees. It consolidates all your bill payments into one screen so you can track them with less effort. Additionally, the app syncs with your Google Calendar, giving you real-time updates and deadline reminders and making sure you pay on time. Safeguard your credit score and avoid penalties by signing up for Cushion.
How does a credit card’s billing cycle work?
Credit cards follow a monthly billing cycle consisting of three important dates:
- Statement Closing Date: The end of your billing cycle, where all transactions are compiled to generate a statement. Any activity after this date will appear on next month’s statement. It will provide you with your statement balance, which is calculated by adding your new charges and subtracting any payments you made during the cycle.
- Due Date: The day your bill is due, usually set about three weeks after the statement date. Paying at least the minimum by this date keeps your account in good standing. Failure to pay at least the minimum by this date will result in a late fee.
- Reporting Date: The date when your credit card issuer reports your credit information to the credit bureaus. It’s not mentioned on your bill, but it’s typically around your statement closing date.
Extra tips to pay your bills on time
If you struggle to pay your bills on time, you’re not alone–it’s a common problem that many people face.
However, making timely payments is crucial to maintaining good credit and avoiding late fees.
To help you with paying your bills on time, here are some of our best tips:
- Keep a budget and expenses tracker: Various apps and tools can help you track your bills and payments, create a budget, and avoid overspending.
- Set up automatic payments: You can do this with your credit card issuer to help you make timely payments every month without worrying about it.
- Add your bill deadlines to your calendar: Keeping track of your bill due dates and ensuring you have enough money to cover them can be a lot easier if you use a calendar. If you add your bill deadlines to your digital or physical calendar, you will have a visual reminder of when each bill is due.
- Sign up for alerts from your issuer: Many credit card issuers and banks offer text, phone, or email alerts that will remind you of your upcoming due dates. You can set up alerts for things like when your bill is due, when a payment has been made, or when you’ve reached a certain spending limit.
Frequently Asked Questions (FAQs)
What is the 15/3 rule?
The 15/3 rule is a strategy to pay off your credit card bill that involves making two payments per month. The first payment is made 15 days before the due date, and the second payment is made three days before the due date.
Should I pay off my credit card in full or leave a small balance?
Settling your credit card bill in full each month is generally recommended to avoid accruing interest charges and maintain a good credit score.
While leaving a small balance in your credit card may not necessarily harm your credit score, it can result in you paying more interest charges over time.
But if you’re struggling to make ends meet and paying it in full is simply not possible, pay down at least the minimum. This is better than missing it altogether since it can result to late fees and damage your credit score.
How to pay off credit card debt when you have no money?
Settling your credit card debt when you have no money can be challenging but not impossible.
Start by creating a budget, prioritizing debt payments, negotiating with creditors, and seeking help from nonprofit credit counseling agencies.
It’s also important to refrain from taking on more debt and stay committed to your debt repayment plan so you can achieve financial freedom.
Summary
Enhance your credit scores, reduce interest charges, and avoid additional fees by knowing when to pay your credit card. Stay well-informed about your billing cycle and explore the benefits of making early payments for a healthier financial profile. By using your credit responsibly, you can build a healthier financial profile.
