What You Need To Know About Paying Your Credit Card Early (2024)

Paying your credit card bill on time is crucial for good financial health. In fact, your history of making on-time payments to your credit card—or not—accounts for 35% of your credit score. As long as you make your monthly billing cycle payment by the due date, you’ll remain in good standing with your credit provider. But there are a few reasons you might want to consider making an early payment.

Benefits of Paying Your Bill Early

Reduce Interest Charges

If you pay your card balance in full by the statement due date, you won’t have to pay interest. But if you choose to carry a balance on your card, this is known as a revolving balance and is assessed interest. Most credit cards calculate your interest charges using the average daily balance method, which means your interest is compounded and accumulates every day, based on a daily rate. This means that every day your finance charges are based on the balance from the day before.

When you make a payment before your billing cycle due date, the balance owed will be reduced by the amount of your payment from the day it is posted. This will, in turn, reduce the overall amount used to calculate your interest every day for the remainder of the month.

Increase Available Credit

Every credit card has a maximum line of credit, which is the total limit you can charge your card. The maximum available credit on your credit card is typically based on a combination of the issuer’s policies and your credit standing. Those with excellent credit scores are likely to receive higher credit limits on a card than those just starting out with credit.

For example, say the maximum limit on your credit card is $2,500 and you currently have a balance of $750. If you wanted to buy a couch for $1,850, you’d have to pay off at least some of your balance to pay for your couch with your credit card. By making that early payment, you can increase the credit available on that particular card in that billing cycle.

You might also consider reducing the amount of debt you’re carrying if you’re shopping for a mortgage. Mortgage lenders typically prefer a debt-to-income (DTI) ratio, which is the total amount of debt you’re carrying compared to the amount of money you’re bringing in, of less than 43%. Your DTI helps lenders evaluate your ability to repay a loan and impacts the rates you receive. By making an early payment, you’ll reduce your DTI ratio and could improve your eligibility for a better interest rate on a mortgage.

Improve Your Credit Score

A key factor in your credit score is your debt-to credit-ratio, which comprises 30% of your FICO Score. This number, also referred to as credit utilization, is the percentage of your available credit being used compared to your total available credit. While owing money does not indicate an inability to pay, the closer you are to maxing out your credit, the lower your credit score will be.

According to the Consumer Financial Protection Bureau, it’s recommended to keep your debt-to-credit ratio at no more than 30%. While making an early payment may not get you within the recommended range if you’re above the 30% mark, your issuer will report a $0 balance when your statement posts rather than your previous balance. That total reduction in credit utilization can positively impact your credit score.

If you’re applying for a loan, an increase of a few points could make the difference between good and fair credit.

Other Ways To Boost Your Bottom Line

Paying your credit card bill early isn’t the only way to improve your debt-to-available credit ratio and ultimately your credit profile. Here are some best practices to keep your credit standing in ship-shape.

Aim To Pay in Full

If you are able to pay your credit card bill in full and on time each month, that behavior will save you a significant amount of money in interest over the lifetime of your card. Keep in mind that if you’re using a rewards credit card, any interest you pay on a balance you’re carrying will far outweigh the value of any rewards earned.

Make Timely Payments

There’s a common myth that you need to carry a balance to build your credit. Ultimately, it’s up to you whether you pay your bill early or in full each month, but making at least the minimum payment on time is the best thing you can do to maintain or build up your credit score. Your card provider will report timely payments to the three main credit reporting bureaus, Experian, TransUnion and Equifax, and this behavior makes up 35% of your score.

Plan Ahead and Keep the Balance Low

There may be times when you need to carry a balance. But in general, do your best to only charge what you’ve budgeted for. That way, if an emergency arises, you’ll have sufficient credit to cover any unexpected costs.

You also want to keep an eye on your debt-to-income ratio and total credit utilization to ensure you qualify for the best terms if you need to apply for a loan.

Keep Your Oldest Card Open

On-time payments and debt-to-credit ratio comprise 65% of your credit score. But the next highest category, making up 15% of your score, is your length of credit history. By simply keeping your oldest credit card active and in good standing, you can maintain a long-standing credit history that can positively impact your credit score.

However, if your oldest card has an annual fee and you’re not actively using it, you may want to contact your card provider to see if you can make a product change to a no-annual-fee option.

Earn the Right Credit Card Rewards for You

Credit card welcome bonuses are designed to be alluring. And while the rewards offered can be beneficial, some cards may be dangling incentives that may not work for you. Before applying for a new card, review the complete terms and conditions. Earning miles on an airline card probably won’t be beneficial if you rarely fly, for example.

Knowing your spending habits can also help you determine the best card for your needs. Often the welcome bonus is the most enticing part of the offer, but if a card offers high rewards on dining out when you mostly cook at home, that may not be the best choice for you long-term.

Bottom Line

If you’re looking to improve your credit, paying your credit card bill early may temporarily help. But good credit isn’t built with short-term solutions. Making timely payments and keeping your balances below your maximum limits will, over time, go a long way toward helping you build a solid credit history.