When it comes to paying your credit card bill, the most important date you need to pay attention to is the due date. The consequences of paying your credit card issuer late depend on the terms and conditions, but you might be charged late fees and even see a higher penalty interest rate after 60 days. After 30 days, the late payment can be reported to the credit bureaus and negatively impact your credit score.
The reasons for paying your bill on time are obvious. But there are many benefits you can get from making payments earlier than the due date whenever you can. Here’s why.
1. Lower Your Credit Utilization Ratio
Your credit card’s due date simply indicates that a billing cycle is over and it’s time to pay. But that’s not necessarily when your issuer reports the balance on your card to the credit bureaus.
One important factor that goes into your credit score is your credit utilization ratio, or the amount of available credit you are currently using. For example, if you have a single credit card with a $5,000 limit and you have a $2,500 balance on that card, your credit utilization is 50%.
Keeping your balance at a lower utilization is better for your credit. Having high utilization can indicate that you have trouble managing your credit and can negatively affect your credit score. For this reason, it’s commonly recommended to always keep your balance under 30%.
Your credit card issuer may not report your balance to the credit bureaus on your due date. If you were carrying a high balance on your card and planning to pay it by the due date, the credit card issuer may report your balance before you have a chance to pay. If that happens, your credit score might take a hit even if you pay the balance down, or off entirely, just a few days later.
This is why it’s a good idea to pay early when you can to keep your balance low, regardless of when your bill is actually due.
2. Save Money in Interest
If you pay your credit card bill in full every month, you don’t need to worry about getting charged interest. That’s because your card has an interest-free grace period up until the next billing cycle, and you just have to pay your balance in full by that time.
But if you don’t plan on paying the balance in full, paying what you can as early as possible helps save you money in interest. Interest is calculated using your average daily balance during the billing period. When you pay ahead of the due date, you are automatically reducing your average daily balance for that time frame.
3. Free Up Space on Your Card
Paying early frees up 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 come in handy in case you have a big purchase to make – for example, you need to replace a home appliance or pay for an expensive car repair. The earlier you make payments throughout the month, the more wiggle room you have on your card before the due date hits.