Paying your credit card bill early is an easy way to cross the task off your list so you don’t forget to pay before the due date.
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Punctual payments are the minimum requirement for maintaining a good credit rating.
Prepayments can also have a positive effect on your creditworthiness. However, you may be paying too early, reports Times Magazine.
Here’s a guide to help you decide if prepayment by credit card is right for your financial situation.
A credit card’s billing cycle is the time that elapses between billing cut-off dates. It lasts about a month and is usually between 28 and 31 days.
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Your statement balance will be increased by a combination of the following transactions:
- Outstanding amount from the previous credit card statement
- Purchases made during the current billing period
- Advances received during the current accounting period
- Balance transfers made during the current billing period
- Interest expense on outstanding amounts from the past
- Issuance of corporate fees
Certain other transactions will reduce your statement balance:
- Payments made by you
- Granting Company Report Credits
The statement balance is also used to determine your minimum payment. Your credit card payment is typically due 20-25 days from the date of your statement. Your next billing cycle starts immediately.
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There are two very important dates to keep track of every month if you own a credit card. Your invoice due date is the same day every month. It only changes if the due date falls on a holiday or weekend. In this case, it will be postponed to the next working day. As mentioned above, the billing period may vary by a few days depending on the number of days in the month.
The statement close date is the last date of your billing cycle. All transactions that have been paid and are not yet due for payment at the time the statement closes appear on your credit card statement. The next date is the start of the next billing cycle. All transactions paid after the billing cut-off date will appear on the next credit card statement.
The invoice due date is the date by which you must make payment or accrue interest charges. If you pay your bill in full before the due date, you waive interest charges entirely, according to Times Magazine.
If you make at least the minimum payment, interest will accrue on the outstanding amount, but you will retain your good standing with the issuer. You may be able to avoid interest charges on outstanding balances if you are in a 0% APR period.
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Benefits of paying your bill earlier
According to the Times, there are several benefits to paying your bill early, here they are:
- You’ll save money on interest costs by paying your bill in full sooner.
- You don’t have to worry about forgetting to make a payment before the bill’s due date if you’ve already paid your bill.
- You can even improve your credit score by reducing your credit card balance throughout the billing cycle.
In many cases, paying off your credit card bill early is a good idea. However, there are several reasons why you might not want to pay your credit card bill sooner.
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If you pay early, a second payment may be due
If you send your payment before the statement close date, it will be applied to the current billing period and will reduce the balance shown on the statement. If your statement still shows a balance after your prepayment, there is still a minimum payment due by the invoice due date to keep your account in good standing. If you don’t make the minimum payment between the closing date of the statement and the due date of the invoice, you risk losing your reputation with the issuer.
To keep money in your bank account for emergencies
If you’re consistently below your 30% credit utilization rate and always make your monthly payments on time, you might prefer to keep the money in your bank account for emergencies. Some sellers do not accept credit card payments. If you have an issue that requires cash or a check, you need to have the money in your bank account.