When it comes to credit cards, on-time payments are crucial, so it makes sense to wonder if there are any perks that come with early payments. The short answer: There can be, but it’s important to understand how they may work to decide if it’s worth it for you.
Let’s examine early credit card payments, including their benefits, when they may make sense, potential credit impacts and tips for managing them.
What counts as an early credit card payment?
There are a couple of instances when your credit card payment would be considered “early”:
- If you pay before the statement due date: This is the traditional due date and is listed on your credit card statement.
- If you pay before the statement closing date: Your credit card billing cycle ends before your payment due date, and that time is called the grace period. Paying during the grace period is also considered an early payment.
Benefits of paying your credit card early
There are several key advantages of paying your credit card bill early:
- Reducing or avoiding interest charges: Credit card interest is typically calculated daily. Whether you pay in full or in part, the earlier your payment, the less you may pay in interest.
- Lowering your credit utilization ratio: Paying your credit card bill early may lead to your issuer reporting a lower debt amount to the credit bureaus. That can lower your credit utilization (the amount of credit you’re using compared to your credit limit).
- Supporting a stronger credit score: Lowering your credit utilization and adding an on-time payment to your credit history may help boost your credit score.
- Minimizing the risk of missed payments: By paying early, you’re also helping ensure that you’re avoiding issues like late fees and potential credit score damage.
When paying early makes the most sense
Paying your credit card bill on time can help you avoid issues like late fees. However, there are times when it may make sense to prioritize earlier payments, such as:
- When you’re carrying a balance and want to reduce interest: Carrying a balance typically means you’ll pay interest, and that’s typically calculated daily based on your annual percentage rate (APR). The earlier you can pay down some of that balance, the less interest you stand to pay in interest.
- When you’re planning on making a large purchase: If you want to charge a large purchase to your credit card, you may want to consider paying earlier to help keep your card’s utilization (the amount of credit you’re using compared to your credit limit) low. This can help ensure there’s enough available credit to cover that purchase.
- When you’re budgeting proactively across pay periods: If your credit card due date falls on an inconvenient date, you may wish to pay your bill earlier to help you better manage your finances.
Does paying early always improve your credit score?
While paying your credit card bill early can help lower your credit utilization, which may improve your credit score, it doesn’t directly increase your credit score. Rather, credit card issuers would report those payments as “on time” as there is no special category for early payments. Still, on-time payments are the most important credit scoring factor. Cultivating a positive payment history is key to helping you improve your credit.
Managing early credit card payments
If you decide that early credit card payments are right for you, there are 3 steps you may wish to take:
- Find out your statement closing date. If you prioritize paying before that date, your credit card issuer may report a lower balance to the credit bureaus, which may help boost your credit score.
- Consider setting up multiple payments per month. This may be useful for managing your cash flow, especially if you get paid multiple times per month.
- Keep tracking your payment due dates. By being aware of these important dates, you may plan your credit card payments more effectively and avoid missing payments if you’re unable to pay early in a given month.
Paying your credit card bill early can have its perks, but it’s important to consider how those plans fit into your broader finances. For example, you should consider the potential benefits compared to how much time and effort it will require. If it doesn’t make sense for your situation, you may consider signing up for autopay instead. That way, you may keep up to date on payments while putting your focus somewhere more impactful.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
