It’s widely known that paying a credit card bill late can hurt your credit score. With that in mind, you might wonder whether making a credit card payment a month early would do the opposite and help your score. It’s possible — but only in a limited, indirect way, and only under certain circumstances.
One important factor in your credit score is your payment history: whether you’ve paid your bills on time, or, more importantly, whether you’ve paid your bills late. Your credit report shows how many times your payments have been 30, 60 or more than 90 days late. Any payments made by the due date are considered on time. So, as far as your credit report is concerned, it doesn’t matter whether you make a credit card payment right at the deadline or a month before the due date. It’s not late, so it’s not reported.
Another significant element in your credit score is the debt-to-credit ratio, also referred to as “utilization.” Debt-to-credit ratios indicate how much of your total available credit you’re using. Say you have $1,000 in credit card debt. If your cards have a total credit line of $20,000, then your debt-to-credit ratio is just 5 percent. But if your credit line is $1,000, then you’re maxed out on your cards. Your ratio is 100 percent. A high ratio can hurt your credit score.
Credit card issuers commonly report your most recent statement balance to the credit bureaus, such as Experian, which compile credit reports. Making a payment on a credit card a month before the due date may be early enough to reduce your reported statement balance, which will reduce your debt-to-credit ratio. That, in turn, can help your credit score. The effect is greatest when you pay down a relatively high balance on a card that has a relatively low limit. Paying off an $800 balance will likely have a greater effect if the card limit is $1,000 as opposed to $5,000.
Beyond your credit score, making credit card payments as early as possible is just a good credit habit. You avoid the risk of late charges, and you reduce the interest charged on outstanding balances. Credit cards typically have a “grace period,” during which you don’t pay interest on new purchases. If you pay your balance in full and on time each month — if you use credit cards for convenience rather than to obtain things you can’t afford to pay cash for — you won’t have to pay interest on any purchases.
About the Author
Cam Merritt has been a professional writer and editor since 1992, specializing in articles about personal finance and law. He has contributed to USA Today and the Better Homes and Gardens family of magazines and websites. Merritt has a Bachelor of Arts in journalism from Drake University.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2013 ConsumerInfo.com, Inc. All rights reserved.