When is the best time to pay your credit card bill each cycle?
Having the money arrive by the due date is the minimum requirement. However, getting the funds to the bank early is much better – with one tiny possible drawback.
Sending the funds multiple times every month is the ideal approach for people who revolve the balance. They lower their interest expenses without forwarding an extra penny.
People who transact (retire the entire balance) still benefit by boosting their available limit without sacrificing any rewards points.
Learn why early and often is the model approach for reducing your debts – with one exception.
Paying Credit Card Bills Early
Paying your credit card early – before the statement due date – is generally a good thing. It prevents you from being late and suffering the negative consequences of extra fees, penalty interest charges, and having the negative history appear on your consumer report and hurting your score.
Mistakes happen (mail delays, lost envelopes, network outages, data entry errors, etc.). Therefore, getting your money to the bank prior to the deadline is a best practice, and has other hidden benefits.
Paying your credit card early allows you to use the account again during the billing period. You increase your available credit each time you make payment. This frees you up to resume spending on the account until you reach the maximum again.
Available credit means the difference between the limit and the current balance on the account. People in the industry also refer to this as “open to buy.”
For example, companies require a minimum available credit amount before releasing a rental car. They place a hold (which reduces open to buy) to cover vehicle damage, late returns, etc.
Paying your credit card before the statement date (or bill generation) could be too early – if it causes you to make a mistake in the next billing cycle. The bank will apply the payment when received. This means you could have two debits in one cycle and none in the next.
Missed payments result in late fees and interest charges – which is bad
Avoid this problem. Set up an automatic online banking program with recurring minimum payments (or higher) scheduled to arrive ahead of the required time.
Paying your credit card early does not hurt your credit score. Using automatic online systems is a best practice that helps you avoid troubles caused by delays and other forms of human error.
Set up your system to send an amount well above the required minimum each month. Schedule it to arrive several days before the due date. Reap two benefits for your FICO or Vantage score.
- You stay current on the account with no delinquencies
- payment history makes up 35% of your score
- Stop late fees and penalty interest from swelling your balance
- amount owed makes up 30% of your score
There is no best time to pay your credit card to avoid interest. Early remittance will minimize borrowing costs but will not eliminate them. The terms and conditions on your cardholder agreement spell out the requirements. It will read something like what follows.
“Your due date is at least 25 days after the close of each billing period. We will not charge you interest on purchases if you pay your entire balance by the due date each month.”
The amount and not the timing or frequency determines whether you meet the grace period requirements.
- Revolvers pay interest when a portion of the statement remains unpaid in the previous billing period
- Transactors do not pay interest after they retire the full balance owed by the due date in the previous billing period
Paying Credit Cards Multiple Times Per Month
Paying credit cards multiple times each month is a viable strategy to reduce interest charges for people who revolve a balance. Each remittance cuts the daily balance used to calculate the cost of borrowing money during each day in the billing period. The terms and conditions in your cardholder agreement may read as this statement does.
“We multiply the daily balance by the applicable daily rate. We do this for each day in the billing period, including the statement/closing date.”
Making credit card payments immediately after a large purchase is a good strategy to shrink interest charges for revolvers. The amount of money saved (debt reduced) will vary based on the timing within the 30-day billing cycle and the size of the purchase.
The chart below provides an overly simplified illustration of how timing plays a role in the daily balance calculation for each period. The timing and size of purchases (additions) and payments (subtractions) affect the cost of revolving a balance.
In this example, a borrower revolves a $5,000 balance from the previous period and makes one large $5,000 purchase. The bank charges a 24% interest rate (2% monthly).
|Purchase Day||Average Daily Balance||Interest|
Paying immediately after a large purchase does not save money for transactors, or impact their rewards points in any fashion. However, it does free up more “open to buy” on the account.
Making automatic credit card micropayments multiple times each month is the best practice. Micropayments keep the account current at all times (avoids late fees) and reduce interest charges for revolvers by cutting the daily balance calculation – as noted above.
In addition, micropayments are free with most online banking systems! You devote the same amount of money to retiring debt and get far better results.
- Weekly micropayments ensure assures that the bank has enough time to receive at least three of the checks, process the transactions, and post the subtractions to your account balance before the statement closing date.
- Twice monthly payments arrive every fifteen days apart. There is a ten-day window between the due date and the next statement closing date – when banks report balances to the bureaus. This could hurt your credit score slightly for the first month.