Keeping America’s Credit Strong: 3 Steps
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October 5, 2022
When it comes to paying your credit card bill, the due date is the most important one. Depending on your credit card issuer’s terms and conditions, you may be subject to late fees or even a higher penalty interest rate after 60 days. Late payments are reported to the credit bureaus after 30 days and negatively impact your credit score.
Paying your bill on time has obvious benefits. There are, however, many benefits to making payments earlier than the due date whenever possible. Here are some of them.
1. LOWER YOUR CREDIT UTILIZATION RATIO
The due date on your credit card simply indicates that a billing cycle is over and it’s time to pay. However, that’s not always when the card issuer reports your balance to the credit bureaus.
The credit utilization ratio, or the amount of credit you are currently using, is one of the factors that goes into your credit score. As an example, if you have a single credit card with a $5,000 limit and a balance of $2,500, your credit utilization is 50%.
Credit scores are better when your balance is at a lower utilization. A high utilization rate can indicate that you are having trouble managing your credit and negatively impact your credit score. As a result, it is generally recommended to keep your balance below 30% at all times.
Your credit card issuer may not report your balance to the credit bureaus on the due date. If you had a high balance on your card and planned to pay it by the due date, the credit card issuer may report your balance to the credit bureau before you have a chance to pay. Even if you pay off the balance just a few days later, your credit score might be affected.
This is why it’s a good idea to pay early when possible to keep your balance low, regardless of when your bill is due.
2. SAVE MONEY IN INTEREST
If you pay your credit card bill in full every month, you will not be charged interest. This is because your card offers an interest-free grace period up until your next billing cycle, and you just have to pay your balance in full by then.
Even if you don’t plan on paying the balance in full, paying what you can as early as possible can help you save money on interest. Interest is calculated based on your average daily balance during the billing period. By paying ahead of the due date, you automatically reduce your average daily balance for the period.
3. FREE UP SPACE ON YOUR CARD
When you pay early, you have more room on your credit card for other purchases. While you shouldn’t go on a shopping spree just because you have available credit, it can be useful if you need to replace a home appliance or pay for an expensive car repair. As you make payments throughout the month, you will have more wiggle room on your card before the due date.
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