Should You Pay Off Your Credit Card After Every Purchase?
Waiting until your statement date to pay off purchases could boost your credit score, but doing so immediately could help if you struggle with credit card debt.
Contributing Writer at Tally
March 15, 2022
Did you just open a new credit card account? Perhaps you already have credit cards but struggle to pay them off and avoid credit card debt. Or, maybe you're someone looking to use your accounts strategically to boost your credit score.
No matter your situation, you’ve likely wondered at some point when you are supposed to be paying off your credit cards. Should you pay off credit cards after every purchase? Wait until right before the end of the billing cycle? Pay them on your due date?
This article will answer all of your questions regarding credit card payments.
What are some of the basics when it comes to credit card payments?
There are a few key terms and concepts that we'll refer to throughout this article that are worth defining.
First things first, your credit card has a billing cycle. This is the time between two statement closing dates that typically lasts around 30 days, though this may vary between lenders.
At the end of your billing cycle, your credit card issuer sends you a statement listing your purchases for the billing cycle and your current balance. Your credit card balance reflects not only the purchases you've made during the billing cycle but also any unpaid balances and interest from previous cycles.
Your credit card statement also has a due date, and a minimum required payment. The due date is typically a couple of weeks after receiving your statement. The time between the statement closing date and the due date is known as the grace period. You can pay down your charges from the billing cycle during this time without accruing interest charges.
If you don't pay your credit card bill in full by the due date, a few different things could happen:
If you don’t make any payment — or you make a payment that's less than the minimum required — you’ll likely be charged with a late fee and a penalty interest rate. This means that you’ll be charged interest, and your APR may also increase.
If you make the minimum payment, you won’t be charged late fees, but your credit card company will begin charging interest on your outstanding balance.
As mentioned, if you pay off your statement balance in full by the due date, you won’t be charged interest. In managing personal finances, you should strive to pay off your statement balance in full by the due date.
What are some factors that impact your credit score?
Now that you understand how credit card balances work, let's look at how credit scores work and the factors that impact your score. There are two types of credit scores: FICO Scores and VantageScores.
The following weighted factors influence your FICO credit score:
Payment history: 35%
Amounts owed: 30%
Length of credit history: 15%
Credit mix: 10%
New credit: 10%
VantageScore doesn't define the exact percentages it uses to determine scores but does offer the various factors they consider and how influential they are:
Total credit usage, balance and available credit: Extremely influential
Credit mix and experience: Highly influential
Payment history: Moderately influential
Age of credit history: Less influential
New accounts: Less influential
One common denominator between these credit scores is your credit utilization ratio. Your credit utilization ratio represents what percentage of your total available credit you're using. For your FICO Score, this impacts your “amounts owed.” For your VantageScore, this impacts your “total credit usage, balance and available credit.” Both are critical factors when it comes to their respective credit scoring models.
For instance, let's say you have three credit cards with limits of $5,000, $3,000 and $2,000. Your total available credit is $10,000. If you have balances of $3,000, $2,000 and $1,000, you’re using 60% of your available credit ($6,000 used of a possible $10,000). This 60% is your credit utilization rate.
According to the credit bureau Experian, keeping your utilization rate below 30% of your available credit is recommended. Generally speaking, the lower your credit utilization ratio, the more positive the impact on your credit score. Additionally, while a low ratio is preferred, you usually don’t want to maintain a 0% credit utilization ratio, as your credit report will look like you’re not using the card.
Should you pay off credit cards after every purchase?
If you choose to pay off your credit card after every purchase, you'll find that there are both pros and cons.
This is primarily because the credit bureaus don’t receive information about your account until the end of the billing cycle. If you’ve paid off your full balance before the statement closing date, the credit bureaus will be led to believe that you’re not using the card — even though you’re using it and paying it off after every purchase. Because you’ll have a zero balance when your statement is issued, your credit utilization rate will be seen as 0%.
The bottom line is that it’s better than the alternative of making late payments or racking up debt. Credit card interest rates are often high, making it difficult to get out of debt.
Remember that credit cards grant you access to money that you don't actually have. Whenever you have a credit line, you’re borrowing money on the promise that you'll pay it back. So, if you have a $5,000 credit limit on a credit card, you technically have $5,000 in purchasing power, even though you may only have $1 in your bank account.
If you struggle managing your money, then you may want to try something like paying off your credit card after every purchase. Essentially, you'd be treating your credit card like a debit card, which can help you learn how to properly budget your money and not overspend.
What is the best credit card payoff strategy?
From a high level, the best credit card payoff strategy is the one that prevents you from taking on debt. It's better for you to pay off credit cards after every purchase than to fall behind on monthly payments and start accruing high-interest credit card debt.
But if you’re looking to build a good credit score, then you're better off having a balance hit your statement at the end of the month, as long as that balance is less than 30% of your total credit. Then, you make an on-time payment in full so that you’re not charged interest or late fees.
If you're looking for ways to keep your balances more manageable, consider the 15/3 credit card repayment hack.
Manage credit cards responsibly to improve your finances
Spending on a credit card is easy, but managing a credit card responsibly can be challenging. When it comes to paying off a credit card, you're better off doing so after every purchase than the alternative — missing payments and collecting interest.
However, if it's possible to do so, try ensuring that you have a balance that hits your statement every month. If this balance is below 30% of your credit limit, then you may start building a good credit score, assuming you make your monthly payments in full by the due date.
If you’re looking for ways to manage your credit cards, consider the Tally app. Tally’s† credit card payoff app can not only help you manage due dates but can also help you pay down higher-interest credit card debt quickly and efficiently with a lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.