FAQ: When Should I Pay My Credit Card Bill?
Timing your credit card bill payment could help you build your credit and save money on interest charges.
October 1, 2022
When should I pay my credit card bill? This is an important question to consider for your personal finances. However, there’s not necessarily a one-size-fits-all answer. The right time to pay your credit card bill may vary based on whether you can pay your credit card balance in full or if you’re still trying to pay down debt.
In this article, we’ll cover both scenarios so you can make your payments at the right time for your finances.
How do credit card bills work?
You will have a predefined billing cycle when you open a new account with a credit card company. This cycle typically lasts 30 days. You can make purchases and payments during this time without consequence. You'll receive a monthly statement at the end of the billing cycle. The statement formalizes your outstanding balance from the last 30 days.
For instance, let’s say that you make three purchases, charging $250 on your card for each, and you pay off $150 during your billing cycle. At the end of your billing cycle, you’ll have a $600 balance.
In addition to the statement balance, your statement will list a payment due date and the minimum payment required. The minimum payment varies from company to company, but it usually ranges from $20 to $35 or 1% to 3% of your billing amount (whichever is higher). You have until the due date to make a payment. The time between the end date of your billing cycle and your due date is known as a grace period.
By your due date, one of three things will have occurred:
You will have paid the full statement balance and avoided all interest charges.
You will have made at least the minimum payment but still have an outstanding balance. You will be charged interest on this outstanding balance, which will carry over to your next billing cycle.
You will have made less than the minimum payment (or have not made a payment at all). In this scenario, your credit card issuer will typically charge a penalty and late fees. You’ll also be charged interest on the outstanding balance.
In these situations, the amount of interest you’d be charged depends on your credit card issuer and the terms of your agreement. Credit card interest rates can vary based on your card type, but they are generally pretty high. The interest also compounds, meaning paying off the balance becomes more challenging daily.
When should I pay my credit card bill when paying the full balance?
Based on the information above, there is an obvious answer to the question, “When should I pay my credit card bill?” You should pay your bill no later than the due date. You'll be charged interest if you don’t pay your full balance by the due date. And if you make a late payment, you’ll be assessed penalties.
In summary, it’s best to pay your entire balance in full no later than your payment due date. Doing so will help you avoid late fees and interest charges, which can accumulate credit card debt.
If you struggle with money management, you may want to consider setting up automatic payments from your bank account. Many lenders now allow cardholders to set up autopay to ensure balances are paid in full and on time. However, you should ensure you have enough money in your checking account to cover your outstanding balances.
Some strategies can also be involved in paying off your balance, especially if you want to build credit.
How can I build full credit when paying my credit card monthly?
If you’re looking to build credit, the way you pay your credit card bill can help by positively impacting two key credit scoring factors:
Your payment history
Your amounts owed
Your payment history accounts for 35% of your credit score. So simply paying your credit card statement balance (or at least the minimum due) by the due date is one of the easiest ways to improve your credit score — as your on-time payments will be reported to the credit bureaus.
For instance, let's say that you have three credit cards with the following limits:
This means your total available credit is $10,000. Let’s say you put $2,000 worth of charges on one of your cards. Your credit utilization ratio would be 20%, since $2,000 is 20% of $10,000.
Many financial experts recommend keeping your utilization rate below 30% if you wish to build credit — and keeping it in the single digits could be even better. Because of this, a high credit card statement balance could negatively impact your credit score, even when you pay it off before the due date.
Your credit card account details (including your balance and credit limit) are usually reported to the three major credit bureaus on your statement closing date. Knowing this, you can strategically pay down your balance to keep your credit utilization rate low.
Based on the above example of the three credit cards with a $10,000 total credit limit, let’s say that you put $5,000 worth of charges on your cards during a billing cycle. If this information were to be reported to the credit bureaus, your credit utilization rate would be 50%, which might lower your credit score.
To avoid this, you can pay a portion of your account balances before your statement closing date.
Based on the example above, you could pay $4,000 toward your balances before the end of your billing cycles. This would reduce your credit utilization rate to 10% before it’s reported to the credit bureaus.
Remember, if you make early payments to reduce your credit utilization rate, you’ll still need to pay the rest of the statement balance by the due date if you want to pay your bill in full.
What about if I’m paying down credit card debt?
If you’re trying to pay down existing credit card debt, it can take time to get things to the point where you can afford to pay off your statement balance in full each month.
In this scenario, you should try to make payments toward your account balance as frequently as possible. This is because credit card interest usually compounds daily based on your current balance. The higher your balance, the more interest fees you’ll rack up.
You can lower your balance throughout the billing cycle by making more frequent payments toward your debt. This way, you’ll accumulate less interest by the end of the month, reducing the total debt you’ll owe.
Everyone’s situation is different, but the sooner you can pay off that excess debt, the better. You could make small installment payments at the end of each week or each time you receive your paycheck. Even if you can’t pay the full amount, making these early payments toward your total account balance will help reduce the impact of compound interest.
On the other hand, if you wait until your next due date to make a payment, your previous balance will have that much more time to compound interest. The total amount you owe will be more significant than if you had paid off at least some of your balance in advance.
Paying down your debt in this manner also will help build your credit history. By making consistent payments throughout the billing cycle, you should be able to at least meet the minimum payment obligation for your billing statement. This is an on-time payment even when you can’t pay off the full balance. Consistently making on-time payments will boost your credit score over time.
Be strategic when paying your credit card bill
When should I pay my credit card bill? The answer is going to depend on your financial situation. If you can pay your bill in full, you can simply pay the full balance by the due date or strategize on when you pay to build your credit score. If you are trying to pay down debt, you should try to make consistent payments throughout your billing cycle to reduce compounding interest.
By following these basic guidelines, you can improve your credit utilization ratio and payment history, maximizing the potential growth of your credit score.
If you need help making on-time payments, be sure to consider Tally†. Tally is a credit card payoff app offering a lower-interest line of credit that can help you manage due dates and pay off existing debt efficiently.
†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.