The Ideal Time To Pay Off Your Credit Card

Nov 19, 2023 By Triston Martin

To what date do you commit to paying off your credit card balance? Credit card bills are sometimes paid in whole by the due date each month by certain people. Some people, however, may not pay off their amount in full each month but instead make the bare minimum payment before the due date. Is there an optimum time of day to pay off a credit card balance. Before we get into that, though, let's go over a few reasons you should pay your account on time.

The Importance of Prompt Bill Payments

Lenders widely use the FICO® scoring methodology to evaluate applicants' creditworthiness. As calculated by that system, your payment history accounts for 35% of your total score. A bad credit score might result from a history of missed or late credit card payments.

There's more than one good incentive to have your credit card debt paid off quickly. One kind of revolving credit is the credit card. Revolving credit accounts, in contrast to installment credit accounts like mortgages and student loans, enable you to borrow money as you need, within a specific limit, rather than waiting until your next payment is due. You are not required to pay your account in full each month, and you can carry a debt monthly if you want.

Revolving debt often bears more weight than installment debt regarding your FICO® credit score. Making any loan payment late can thus hurt your credit score, but late credit card payments can be incredibly detrimental.

Thirty percent of your FICO® score is based on the total amount of debt you have. The percentage of how much of your available credit you're using (your credit utilization ratio) is a significant aspect of this metric for your revolving credit accounts. If you fail to make your credit card payments on time and have already made substantial use of your available credit, your credit score may suffer a significant hit.

Reasons to Pay Off Your Credit Cards Early

It's wise to pay off your credit card balance when it's due, but paying it off can have positive consequences. It is necessary to be familiar with your billing cycle. Many credit card companies have a billing cycle between 29 and 31 days. Your statement close date is the last day of your billing cycle.

Typically, credit card companies disclose your current balance to credit reporting agencies on this day. Your due date for payments is different from the day of closure. After all, the grace period for credit card payments typically ranges from 21 to 25 days.

A credit card payment made before the due date will make it appear that less debt has been incurred. Let's pretend for a moment that your credit card has a $3,000 limit. Credit bureaus will show a decrease in your spending history of $1,700 if you spend $2,500 but pay off the entire balance by the closure date.

I don't see the benefit in that. Using our scenario as an example, the credit reporting companies would estimate your credit usage ratio to be 26.7%. When your percentage of available credit to total debt is reduced, your credit score rises. If you want to raise your FICO® score, keeping this number below 30% is a good goal.

When To Pay Off a Credit Card

You'll be in good financial standing if you can pay off your credit card on the due date, especially if you pay the total sum. If you're concerned about your credit score, it could be best to spend at least some of your payment before the due date.

However, the optimal moment to pay off your credit card balance may be whenever your use rate rises beyond 30%. You can safeguard your credit rating by monitoring your credit usage ratio and maintaining it as low as possible. And you can forget about keeping track of the day when your credit report is due.

Take your credit card amount and divide it by your available credit to get your credit usage ratio for a particular card. Then, double that by a hundred. The percentage of total credit used to total credit available is another factor reported to credit agencies. It's the sum of all your credit card balances as a percentage of your available credit.

The Bottom Line

Are you trying to determine when paying off your credit card would be most beneficial? You must pay before the due date to avoid interest and late penalties. However, whenever your debt-to-credit ratio is too high, the optimum time to pay to boost your credit score is likely to be before your statement closure date.

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