While it's commonly known that there are consequences to paying your credit card bill late, you might be wondering 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 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.
What we'll cover
- Benefits of paying your credit card early
- Are there downsides to paying early?
- Does paying my credit card early affect my credit score?
- Bottom line
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 a factor in determining 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
On Citi's Secure Site
Rewards
None
Welcome bonus
None
Annual fee
$0
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.
Regular APR
19.24% - 29.99% variable
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).
Foreign transaction fee
3%
Credit needed
Excellent/Good
See rates and fees. Terms apply. Read our Citi Simplicity® Card review.
Discover it® Cash Back
On Discover's secure site
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.
Welcome bonus
Discover will match all the cash back earned for all new cardmembers at the end of your first year.
Annual fee
$0
Intro APR
0% for 15 months on purchases and balance transfers
Regular APR
17.24% to 28.24% Variable
Balance transfer fee
3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*
Foreign transaction fee
None
Credit needed
Good / Excellent
*See rates and fees, terms apply.
Read our Discover it® Cash Back review.
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. If you only pay the minimum balance required on a credit card, you will be charged interest on the remaining balance, as well as 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)
Cost
34-day free trial then $99 per year or $14.99 per month (college students who provide proof of enrollment get 12 months free)
Standout features
Instead of using traditional budgeting buckets, users allocate every dollar they earn to something (known as the "zero-based budgetingsystem" where no dollar is unaccounted for). Every dollar is assigned a "job," whether it's to go toward bills, savings, investments, etc.
Categorizes your expenses
No
Links to accounts
Yes, bank and credit cards
Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
Security features
Encrypted data, accredited data centers, third-party audits and more
Terms apply.
Are there 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 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 UFB Secure Savings account where you can earn up to 5.25% APY. 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 Secure Savings
UFB Secure Savings is offered by Axos Bank ® , a Member FDIC.
Annual Percentage Yield (APY)
Up to 5.25%APY on any savings balance; add a UFB Freedom Checking and meet checking account qualifications to get an additional up to0.20%APY on savings
Minimum balance
$0, no minimum deposit or balance needed for savings
Fees
No monthly maintenance or service fees
Overdraft fee
Overdraft fees may be charged, according to the terms; overdraft protection available
ATM access
Free ATM card with unlimited withdrawals
Maximum transactions
6 per month; terms apply
Terms apply.
Read our UFB Secure Savings review.
Does paying my credit card early affect my credit score?
Paying your credit card early does not affect your credit score in and of itself, but how it impacts your other finances does. If you pay your bill early and lower your credit utilization from 70% to 30%, that can have a positive impact on your credit score. If you pay your credit card bill early as opposed to late, that may also positively influence your credit score.
Similarly to positive influences, paying your bill early can also mean you're not taking full advantage of certain situations. If you pay your credit card off early often enough to not carry any balance at all, a credit utilization score of 0% is not as influential as one in the single digits, so you're not earning as much positive credit score influence as you could be.
Find the best credit card for you by reviewing offers in ourcredit card marketplaceor get personalized offers viaCardMatch™.
Bottom line
Paying your credit card bill early is not intrinsically good or bad, but it can help you avoid negative habits such as high credit utilization and late payments. Paying your credit card early won't directly influence your credit score, but it can help in creating good financial habits down the line. If your main concern is accidentally missing a payment due date, you can also consider setting up autopay.
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For rates and fees of the Discover it® Cash Back, click here.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.