When Should You Pay Your Credit Card Bill?
An early credit card payment, i.e., before the statement is closed lowers the interest you accrue on the balance and helps increase your credit score. This happens because:
- You have a lower average daily balance
- The credit utilisation is lesser.
So, if early payments help you, what is the right time to settle your credit card bill?
What’s The Best Time to Pay A Credit Card Bill?
The best time to settle a credit card bill is before the statement’s due date. If you pay the amount after the due date, you get hefty late fees based on the credit card you hold and its interest rates. Over time, these fees tend to add up swiftly.
More than a massive charge, late payments affect your credit score. About 35% of the score is dependent on your billing history. With even a single delayed payment, the score can drop significantly. It should be noted that a lot of banks tend to report a delay in payment only if you are late by over 60 days, but they are free to point out your tardiness at any time.
While it is never too early to pay off a credit card, ensure that the payment is credited to the current statement period. For instance, let’s say your statement closes on 31st October and you pay it off on 30th October. If you pay less than the full balance owed, your payment may be credited to the previous statement.
As a result, you will still be required to make the minimum payment towards your 31st October statement.
How Paying Your Credit Early Helps You Financially?
One of the advantages of paying your credit card bill in the middle of the statement period is more line of credit. Another is reduced interest. But one that helps you the most is improved credit score, particularly when you have made a significant purchase.
Let’s see how credit score impacts you:
Credit card companies report any balance amount to credit score bureaus around the time the statement closes. Let’s say your credit card shows a high balance during that time, i.e., your credit card utilisation is high.
This is seen as a negative factor by credit history agencies like CIBIL. Therefore, they will decrease your credit score accordingly.
Now say you want to take a personal loan during the same time and the lender checks your CIBIL score only to see that your credit score is very poor. This can harshly decrease chances of loan approval for you.
It is why it is always recommended to maintain a low balance on your credit card. Pay your balance either partly or entirely before the statement period closes, and it will keep your credit score at a healthy level.
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