Is It Good to Pay Your Credit Card Early?

If you’ve just made a purchase with your credit card and have cash in the bank to cover the payment, you may wonder if you should pay it off now or wait until your credit card bill is due.

There are perks to using a credit card for spending, like a credit card that offers cash back rewards. And managing your expenses with credit can help you cover certain costs until payday. But the decision about when to pay your credit card comes down to your unique circumstances. While there are benefits to paying your credit card early, there may be situations when paying on time is the best choice.

The benefits of paying your credit card early

When paying your credit card balance, staying on top of payments helps you build credit history and responsibly manage your spending. And while making your monthly payment on time is crucial, you may want to consider the benefits of paying early (before your due date).

Increase available credit

Since making a payment early reduces what you owe, it also improves your credit utilization ratio. Credit utilization ratio is the amount of your total available credit that you’re using. It’s calculated by dividing your total revolving credit debt by your total revolving credit limits. Multiply this number by 100 to see the credit utilization rate in a percentage. 

According to the Office of Financial Readiness, your credit utilization rate greatly impacts your credit score. If your credit card company offers online banking, you can use online bill pay to submit a payment before the payment due date and even make additional payments later. Some online banking apps allow you to set up recurring payments for different amounts, like the minimum amount due or the outstanding balance. 

Credit bureaus don’t see the daily purchases you make with your credit card; your credit card issuer only reports your account balance at the close of your billing cycle. So, if you make payments to your credit card company before your due date, you’ll have a lower balance due (and higher available credit) at the close of your billing cycle. That means less credit card debt gets reported to the credit bureau (or bureaus), which could help your credit score.

According to the Consumer Financial Protection Bureau, it’s best to keep your utilization ratio as low as possible, preferably no more than 30% of your total credit limit. 

Avoid late payments

According to Experian, payment history (a record of on-time payments and late payments) is the most critical factor weighing your credit score. Paying your credit card bill early can help your credit score by ensuring you don’t miss a payment. Setting up an automatic payment can take the guesswork out of paying on time, so you never miss a payment date, especially if you have multiple credit cards.

Bring awareness to spending and budgeting

When you make an early payment to your credit card by logging in mid-month, you may notice areas where you can curb excessive spending. Regularly checking your credit card balance could help you stick to a monthly budget.

Lower daily interest on a carried balance

If you carry a balance past your due date, you’ll lose your grace period, which means you’ll pay interest on your balance plus new purchases as you make them. Making credit card payments ahead of the next due date can reduce the balance that accrues interest every day. This is especially helpful if you have a high interest rate. 

You can break it down like this: For regular purchases, you get charged interest based on your credit card’s purchase APR (annual percentage rate). Your APR determines the total interest you pay yearly on any credit card balance you carry from one month to the next. But most credit card issuers apply an interest charge daily (using a daily rate based on your APR), which compounds (interest charged on unpaid interest) over time. That means you can save on daily interest charges by paying early, no matter the amount.

Are there downsides to paying your credit card early?

As beneficial as paying your credit card bill early can be, there are some reasons you may want to stick to your scheduled payment date. For instance, you might need to keep cash in your bank account to pay for necessities or other bills. If this is the case, paying on the due date can help you meet your other financial responsibilities.

Is it best to pay your credit card early or on time?

While there’s no single answer to whether it’s best to pay your credit card early vs. on time, it’s safe to say you should avoid paying late. Aside from potentially incurring a late fee, making a late payment or missing a credit card payment can negatively impact your payment history and credit score.

Managing your debt takes careful planning and discipline. Understanding how paying your credit card bill early impacts your credit and cash flow can help you make more informed decisions.