While it’s commonly known that there are consequences to paying your credit card bill late, you might wonder what happens if you pay it early. Aside from potentially protecting yourself from late fees and high interest charges, paying your credit card early can indirectly affect your credit.
Below, CNBC Select looks at whether it’s good to pay your credit card bill early and how doing so might affect your overall financial health.
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Benefits of paying your credit card early
Lower credit utilization rate
One of the most noticeable benefits of paying your credit card bill early is that you can lower your overall credit utilization rate, also known as your debt-to-credit ratio. John Ulzheimer, formerly of FICO and Equifax, previously told CNBC Select that while the optimal credit utilization rate is 1%, “less than 10% is much more doable and it will serve your scores well.”
If you make payments to your card before the payment due date, you can lower your overall credit utilization rate, which is a positive sign for credit lenders. Credit utilization is one of the factors that determines an overall credit score, so continuing to keep a low credit utilization ratio could improve your score.
Avoid late payment fees
Paying your credit card bill early is a simple way to avoid late payment fees. Aside from the fee, missed credit card payments may be reported to the credit bureaus, meaning your credit score and APR could also be affected.
Credit card late payment fees can be as high as $41 for each missed payment. However, there are a few cards, such as the Citi Simplicity® Card, which have no late fees whatsoever, and some cards, like the Discover it® Cash Back, which may waive your first late fee.
Citi Simplicity® Card
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Rewards
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Welcome bonus
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Annual fee
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Intro APR
0% Intro APR for 21 months on balance transfers from date of first transfer and 0% Intro APR for 12 months on purchases from date of account opening.
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Regular APR
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Balance transfer fee
There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
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Foreign transaction fee
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Credit needed
Discover it® Cash Back
On Discover’s secure site
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Rewards
Earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases-automatically.
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Welcome bonus
Discover will match all the cash back earned for all new cardmembers at the end of your first year.
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Annual fee
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Intro APR
0% for 15 months on purchases and balance transfers
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Regular APR
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Balance transfer fee
3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*
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Foreign transaction fee
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Credit needed
Time to resolve payment issues
Many credit cardholders pay their bills by linking their credit card to a bank account and transferring the money that way. By paying your credit card bill early, if there are ever any issues with the payment process, such as bank transfer issues or insufficient funds, you have time to correct them before any payments are officially due. If you wait until the day the payment is due, you might not have any wiggle room should you run into unforeseen issues.
Save money on interest
The golden rule of credit cards is to pay your balance in full when possible to avoid expensive interest charges, also known as a credit card deadbeat. If you only pay the minimum balance required on a credit card, you will be charged interest on the remaining balance and new purchases you make.
However, paying your bill in full isn’t always feasible. If you have to carry debt into the next month, you don’t need to wait until the next billing cycle ends to pay the balance. Most credit card issuers charge interest daily based on your annual percentage rate (APR), so the earlier you pay the balance, the less you’ll pay in interest.
Don’t miss: The best 0% APR credit cards so you can finance your debt or make purchases interest-free
Better budgeting awareness
Paying your credit card bill early allows you to track your spending better and make adjustments as needed. If you pay your bill halfway through the month and notice you’ve been spending too much dining out, you can spend the second half of the month trying to cut back.
Budgeting apps like You Need a Budget (YNAB) can also help you keep track of your finances. For example, YNAB uses the zero-based budgeting method where users allocate every dollar into a category.
You Need a Budget (YNAB)
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Cost
34-day free trial then $109 per year or $14.99 per month (college students who provide proof of enrollment get 12 months free)
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Standout features
Instead of using traditional budgeting buckets, users allocate every dollar they earn to something (known as the “zero-based budgeting system” where no dollar is unaccounted for). Every dollar is assigned a “job,” whether it’s to go toward bills, savings, investments, etc.
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Categorizes your expenses
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Links to accounts
Yes, bank and credit cards
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Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
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Security features
Encrypted data, accredited data centers, third-party audits and more
Downsides to paying early
While paying your credit card bill early isn’t inherently bad, there are a few potential drawbacks to be aware of. For instance, you don’t want your credit utilization ratio to drop too low. 10% utilization is recommended as it shows lenders and credit card issuers that you actively use your card. If you continuously pay your card early and keep your score too low, you might prevent a positive boost to your credit score. After all, a 0% credit utilization rate suggests that you aren’t making any purchases on your card, which isn’t as good as using it responsibly in the eyes of credit card companies.
In addition, if you’re paying your credit card bill early, you still need to ensure you have enough cash in your checking accounts to cover your other expenses. Paying early means you will have less cash available to you at any given time, and that extra cash could be making you money.
Instead of paying your bill early every single time, consider putting your extra cash into a high-yield savings account like UFB Portfolio Savings. With no minimum balance and no monthly fees, this account can help provide some interest on funds that otherwise would have been used to prematurely pay off your bills.
UFB Portfolio Savings
UFB Portfolio Savings is offered by Axos Bank ® , a Member FDIC.
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Annual Percentage Yield (APY)
Up to 4.83% APY on any savings balance; add UFB Freedom Checking and meet checking account qualifications to get an additional up to 0.20% APY on savings
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Minimum balance
$0, no minimum deposit or balance needed for savings
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Fees
No monthly maintenance or service fees
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Overdraft fee
Overdraft fees may be charged, according to the terms; overdraft protection available
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ATM access
Free ATM card with unlimited withdrawals
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Maximum transactions
Does paying my credit card early affect my credit score?
Paying your credit card early does not directly affect your credit score, but can still positively influence it. If you pay your bill early, you lower your credit utilization, which can help your credit score.
Similarly, paying your bill early can also mean you’re not taking full advantage of certain situations. If you carry no balance on your card at all, a credit utilization score of 0% is not as influential as one in the single digits.
FAQs
When is the best time to pay your credit card bill?
Making your payment by the billing due date each month should suffice for most people, but there could be some benefit for paying it earlier too.
Will my credit score go down if I pay early?
Paying your credit card bill early typically won’t negatively impact your credit score. Depending on your specific circumstances, having a credit utilization score of 0% could hold you back from achieving maximum points as credit card companies won’t see that you’re using the card.
How can you boost your credit score quickly?
When should I pay my credit card bill to avoid interest?
As long as you pay off your credit card’s statement balance in full by the due date you will not be charged any interest fees.
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For rates and fees of the Discover it® Cash Back, click here.
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