When Is the Best Time to Pay My Credit Card Bill?
Aim to pay your credit card by the due date. But if you're looking to boost your credit scores or reduce interest costs, consider paying earlier.
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Timing can be crucial when it comes to paying your credit card bill. It may sound obvious, but you should try to pay your credit card bill by the due date every month. Doing so will stave off late fees and a potential dent to your credit scores.
But in some cases, it may be beneficial to pay your bill before the due date. That's because the balance that gets reported to the credit bureaus can have a direct effect on your credit scores. Paying early can also save you money on interest if you aren’t able to pay off the entire balance.
To figure out the best time to pay your bill, it helps to understand how the credit card billing cycle works.
Three key dates
Credit cards operate on a monthly billing cycle, and there are three important dates within that window:
The statement date. Once a month, your card issuer compiles all the activity such as purchases and payments on your card account and generates a credit card statement. The day this happens is your statement date, also called the closing date.
The due date. Usually about three weeks after the statement date, the due date indicates when you must pay at least the minimum amount to avoid a late fee. Payments that are more than 30 days late will show up on your credit report, where they can do serious damage. Payment history is the single biggest factor in your credit scores. And a late payment can stay on your report for seven years.
The reporting date. This date is when the card issuer reports your balance to the credit bureaus. Unlike the closing date and due date, the reporting date does not appear on your bill. It could be any time during the month, but it's usually close to the statement date.
It’s often possible to change your credit card’s due date, which you might want to do so that the due date is aligned with your payday.
Paying early could help your credit
One of the primary factors in your credit score is your credit utilization ratio, or the percentage of credit you’re currently using out of your total credit limit. For example, if you have a $5,000 credit limit and your balance is $2,000, your utilization is 40%. Credit scoring models see a large amount of available credit in use as a signal of financial trouble.
Generally speaking, utilization above 30% could damage your credit scores. When you make a credit card payment, you can lower the utilization rate that’s reported to the credit bureaus.
Credit scores are based on account information including outstanding balances, history of on-time payments and utilization ratio, as mentioned earlier. But this information isn't continually updated in real time. It's reported to the credit bureaus only once a month on the reporting date.
Say your credit card payment is due on the 20th of the month, and your issuer reports credit data on the 15th. If your issuer reported a $2,000 balance out of a $5,000 credit limit, the credit bureaus would see a 40% utilization rate, and your credit score could decrease — even if you paid your bill in full just days later.
So consider paying early whenever your credit utilization nears that 30% mark, regardless of when your bill is actually due. By monitoring your utilization and keeping it as low as possible, you’ll be in good shape to get reported to the credit bureaus on any day of the month.
Note that credit utilization has no memory, meaning that it doesn't have a lasting effect on credit scores. High utilization one month might knock points off, but if your ratio goes back down the next month, your scores should recover.
Paying early can reduce interest
NerdWallet recommends paying credit card balances on time and in full every month. However, that may not always be financially feasible. If you can’t pay the full statement balance and have to carry debt into the next month, paying early can reduce your interest costs. That's because the interest you're charged is based on your average daily balance.
Here's an example. Say you start a 30-day billing cycle with a $1,000 balance:
If you paid $400 on the last day of the month, your balance will have been $1,000 for 29 days and $600 for one day. Your average daily balance would be about $987. If your credit card had a 15% interest rate, your interest charge for the month would be about $12.33.
If you paid that same $400 halfway through the month, your balance will have been $1,000 for 15 days and $600 for 15 days. In that case, your average daily balance would be $800, and your interest charge would be $10. You cut your interest payment by nearly one-quarter just by moving up your payment date.
It's possible to overpay your credit card — that is, pay more than the current balance. This can happen, for example, if you paid your bill manually and then an automatic payment occurred on top of it, or if you mistyped the payment amount. You might even do it on purpose if you want to cover an expense that hasn't posted to your account yet. There's no penalty for overpaying; you'll just end up with a "negative balance," or a credit that will apply to future spending. Leave the negative balance on your account long enough, and the card issuer will refund you.
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