You should always pay your credit card bill by the due date, but there are some situations where it's better to pay sooner.
For instance, if you make a large purchase or find yourself carrying a balance from the previous month, you may want to consider paying your bill early. It seems like a small change, but it can have a significant effect on your overall finances and help protect your credit score.
CNBC Select explains when it makes sense to pay your credit card balance early and how the timing of your payment affects your credit score.
When to pay your balance early
While you're required to make at least the minimum payment on your statement balance by the due date to keep your account current, you should always aim to pay it off in full each month.
However, that's not always possible, especially now due to coronavirus-related layoffs and record unemployment rates.
As a result, you may carry a balance month-to-month. Depending on the size of your balance, this can cause you to incur thousands of dollars in interest charges if you only make the minimum payment. But if there's a month that you have extra money left over after essential expenses, you should use it to pay your credit card bill early, rather than waiting until the due date.
When you pay the bill early, you save yourself some interest, says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report. Card issuers charge daily compounded interest (which is interest charged on interest), and it grows pretty quickly. Even if you pay just a few days early, you can knock off some of those charges and save.
When to make multiple payments on your credit card bill
If your credit card bill is higher than usual because you've made a large purchase, such as new workout equipment or office furniture, your credit utilization rate, or the percentage of your total credit you're using, will go up. This is most noticeable when you have a lower credit limit.
The change in your balance can potentially lower your credit score since utilization is the second most important factor of your credit score. It's important to maintain a low credit utilization rate below 30%, and ideally 10% if you really want a good credit score.
In these situations — and any time you have a higher-than-normal balance — it can be a good idea to make multiple payments during your billing cycle or simply pay the entire balance before your due date. Paying your balance more than once per month makes it more likely that you'll have a lower credit utilization rate when the bureaus receive your information. And paying multiple times can also help you keep track of your spending and cut back on any overspending before you fall into debt.
On the other hand, waiting until your billing cycle closes to make one large payment makes it more likely that the bureaus will see the high balance, since it's reflected on your statement.
Let's say your billing cycle ends on the 10th of every month, and your card issuer reports to the credit bureaus on the 11th. If you typically spend $1,000 on a card with a $5,000 credit limit, your utilization is 20%. But if you make an additional $2,000 in charges for home renovations on the 1st, on top of the $1,000 you usually spend, your utilization would increase to 60%.
However, you can reduce your utilization by paying some of your balance before your billing cycle ends on the 10th. You could pay off the extra $2,000 in charges on the 2nd, and lower your utilization back to 20% by the time your billing cycle ends. The simple action of paying part of your balance early can reduce any potential negative impacts to your credit score.
When card issuers report your balance to the bureaus
Your credit card balance is reported to the credit bureaus at varying times throughout your billing cycle, depending on each lender. If you're unsure when your balance will be reported to the bureaus, call your card issuer to ask the exact date, Harzog recommends.
"Very often, it's the day after the closing date on your statement, but not always," she says. "Find out when that is so you can strategically make your payments."
The dates will probably differ based on the billing cycle for each card. Most lenders calculate your utilization rate based on your statement balance instead of the current balance.
When you should change your bill due date
If you struggle to have cash on hand when your due date rolls around, most card issuers allow you to change the day your payment is due. This allows you to select a day that works best for you (maybe adjust it closer to the days you get paid), which could help you make full payments every month.
On the other hand, if you can't pay in full because of overspending, consider cutting back on non-essential expenses, such as streaming subscriptions or gym memberships.
And if you're falling behind on payments because of a temporary layoff or cut-back on your working hours, you may want to consider using a 0% APR card so you can pay off debt over time with more flexibility on when the entire balance is due.
Cards like the Wells Fargo Active Cash® Card can help you finance new purchases with 0% intro APR for 15 months from account opening on purchases and qualifying balance transfers (after, 20.24%, 25.24%, or 29.99% variable APR; balance transfer fee of 3% for 120 days from account opening, then up to 5%, min: $5 (see rates and fees). Keep in mind that this card requires good or excellent credit. And while it can help you temporarily avoid interest charges, you'll still need to make minimum payments during the no-interest period.
