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Should you pay off your credit card bill early?

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    Quick insights

    • You may want to prioritize paying off your full credit card balance each month whenever possible
    • If you pay all or a portion of your credit card balance prior to the end of your billing cycle it can lower your credit utilization ratio, which might raise your credit score.
    • Early payments can also reduce the total interest paid on outstanding debt.

    Is it bad to pay your credit card bill early?

    The short answer is no – if you can afford to pay your credit card bill early without putting yourself in financial danger elsewhere, it isn’t bad to do so. In fact, doing it can improve your credit score. As for the why and how of it, that will take a little longer to explain.

    How early pay-offs influence your credit

    If you pay your credit card bill any time after your statement close date and on or before your payment due date, it probably won’t impact your credit score much in the short term (although making on-time payments is an important factor for a healthy credit score). But if you make that payment one or more days before your statement closes it could lower your credit utilization ratio, which can raise your credit score.

    What is credit utilization ratio?

    Credit utilization refers to the amount of credit that you’re currently using as a percentage of your total available credit. For example, if you have a credit limit of $2,000 and hold a balance of $500, you have a credit utilization ratio of 25%. If your credit limit was instead $5,000, that same $500 balance would result in a credit utilization ratio of 10%.

    Does credit utilization ratio impact your credit score?

    Yes; in fact, it’s one of the largest contributing factors to your credit score. Credit utilization makes up 20-30% of your credit score, depending on which scoring model you use. For example, it is the second-most impactful factor in determining your FICO® credit score, and the third-most impactful factor in determining your Vantagescore®.

    Using less than 30% of your available credit at any given time is considered good, and using 20% or less is considered ideal. It’s generally recommended to keep your credit utilization ratio below 30% to help achieve a healthy credit score.

    Understanding your billing cycle

    Your credit utilization is typically reported to credit agencies at the end of your billing cycle, on or around your statement close date. Any early payment that occurs after your statement closes, but before your payment due date, is unlikely to have much of an impact on your credit utilization ratio. But payments made before the end of your billing cycle/statement close date – even if only for a portion of the balance – are likely to be reflected in the utilization reporting, thereby lowering your credit utilization ratio, which could improve your credit score.

    Paying your credit card bill

    When should you pay your credit card bill? If you can afford to pay off your entire balance each month, make sure to do so by your payment due date. Even if you can’t pay off your entire balance, making at least the minimum payment can prevent being charged a late fee. Credit card interest is among the highest of all types of lending products, so prioritizing paying your full credit card bill can prevent any interest charges.

    If you can afford to make a payment for the full balance or a portion of it prior to the end of your billing cycle, doing so can have a positive impact on both your credit utilization ratio and credit score. As long as doing so won’t put you at risk of financial hardship elsewhere, it can be helpful to set a reminder or schedule an automatic payment for the entirety or a portion of your current balance one or more days prior to the end of your billing cycle.

    In summary

    So, is it good to pay off your credit card early? Yes, and depending on how soon you do it, you could improve your credit score in the process. Payments made prior to your statement close date could be positively reflected in your credit utilization ratio. If you can afford to do so, paying your credit card bill early could be a useful tool to help improve your credit score, credit history, and financial well-being.

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