When it comes to financial health, few things are more daunting than ever-growing credit card debt. There are many reasons to pay off your credit card balance as quickly as possible, including stopping high-interest debt growth, having more access to cash, and better mental health (because, let’s face it, debt causes a lot of stress). However, one of the main reasons to pay off your credit card bill is to help increase your credit score.
Find out how paying your credit card bills helps your credit score and when is the best time to pay it off.
Key Points You Should Know
- It’s best to pay your credit card bill in full by the billing due date.
- This will help you build a positive payment history and keep your debt-to-credit ratio low; two common factors that can increase your credit score.
- It’s important that you pay at least the minimum payment to avoid a late payment on your credit report.
How Does Credit Card Payments Affect Your Credit Score?
There are two main ways your credit score can be affected by your credit card bill payments.
- Payment History – With each credit card payment your credit card issuer reports the payment to the credit bureau(s). The more on-time payments you have you have, the more it can positively affect your credit scores.
- Debt-to-Credit Ratio – Also known as your credit utilization ratio, the percentage of your credit card limit you use can affect your credit score. Generally speaking, a debt-to-credit ratio of 30% is recommended.
When Should You Pay Your Credit Card Bill To Increase Your Credit Score?
The key to good financial health and a solid credit score is to pay your credit card bill by the billing due date (sometimes called the payment due date). Ideally, you would pay it off in full or at the very least, pay the minimum balance. You’ll know your amount owing and the minimum payment needed once your credit card provider issues your credit card statement.
Once your billing cycle ends, credit card companies usually give you a grace period of a minimum of 21 days to pay your amount owing.
Paying Before And After The Credit Card Statement
Whether you pay your credit card balance before or after your credit card statement can have a big impact on your credit. In general, credit card companies report your credit card balances on your statement date.
- Paying Before The Statement Date – Payments made before the statement date are not reported to the credit bureaus. Moreover, if you pay your credit card bill in full before the statement date, your credit card issuer will have nothing to report as the balance owed on your credit card statement will be zero. However, partial payments made before the statement date can lower your credit utilization ratio.
- Paying After The Statement Date – If you’re looking to use your credit card activity to build your credit scores, it’s best to pay your bill after your statement date. Basically, you want to allow your credit card company to issue a statement that has a balance owing and then go ahead and make your full or partial payment before the due date indicated. That way, your balance and payments are reported to the credit bureaus.
| Pro Tip: If you prefer to make a payment as soon as you have some cash available and don’t want to wait until your statement is generated (i.e. your monthly billing cycle is over), then try to ensure you’ll at least have some amount owing when your credit card provider issues your statement. This is an important point to understand as some people, in their laudable enthusiasm to avoid credit card debt, pay off their amount owing within days of having made a purchase. While this is a smart financial move, it’s not the most effective strategy for increasing your credit score (we explain why in more detail below). |
Statement Date vs. Reporting Date vs. Billing Due Date
These terms are an important part of the credit card billing cycle:
- Billing due date. The billing due date is the date by which you must make a payment. This date generally comes 21 days (grace period) after you receive your credit card statement.
- Statement date. To understand your statement date, there are a few other terms you should know:
- Credit card statement – This is a summary of your credit card activity during one billing cycle or statement period.
- Statement period – A statement period, also known as your billing cycle, is the time between the last closing date and the next.
- Statement date – The statement date is the last day of your billing cycle and is when your credit card statement is generated.
- Reporting date: Your reporting date is pretty straightforward. It’s the date when your credit card issuer reports your account information to the credit bureaus. Usually, it’s the same date as the last day of your billing cycle.
Can Making Multiple Credit Card Payments In The Same Billing Cycle Help Increase Your Credit Score?
While it’s best practice to pay your credit card bill in full by the credit card billing due date, making multiple credit card payments within a billing cycle may help increase your credit score.
If you are using up a lot of your available credit (i.e. getting close to your credit limit on one or more cards) it may be wise to make payments during your billing cycle (before your credit card statement is generated). That’s because doing so will help reduce your reported credit utilization ratio, which can positively affect your credit score.
Why Is A Low Credit Utilization Ratio Good?
Your credit utilization ratio is how much of your available credit you’re using. Generally, credit bureaus like to see a utilization ratio lower than 30%. That’s because a high ratio could signal to credit bureaus that you are overextended and relying too much on credit.
For example, if your available credit from several credit cards comes to $5,000 and you’re carrying a balance of $4,000 total across your cards, that would be a credit utilization rate of 80%. A high ratio like this can decrease your credit score.
To avoid this, you can make one or more payments in the same billing cycle to reduce your credit utilization ratio. For example, if you pay down your balance by $3,000 before your billing cycle ends, your reported utilization would be only 20% ($1,000/$5,000), which is much more favourable for your credit score.
Then you can pay off the remaining $1,000 by the billing due date to build a positive payment history.
Is It Good To Pay Off Your Credit Card Bill Before Your Statement Date?
As discussed above, it can be good to make partial credit card payments before your statement date if you want to reduce your credit utilization ratio. However, it’s generally not a good idea to pay off your credit card balance in full before your credit card statement (which is generated at the end of your billing cycle) if you want it to increase your credit score.
When you pay off your credit card balance in full before the end of the billing cycle, your credit card statement will reflect a $0 balance which appears to credit bureaus like you’re not using your card. Any payment activity done during the billing cycle is not reported to the credit bureaus. This is because the credit card company only reports the information and balance on your credit card statement. As such, if you pay off your credit card before this date, they won’t have anything to report to the credit bureaus.
The key is to hold off on paying down your entire balance until a statement has been generated. In this way, your balance owed and your credit utilization gets reported to the credit bureaus. Similarly, your follow-up payment will also be reported, which can increase your score. To boost your score credit bureaus must be able to see the payment due/payment paid process happen.
Tips To On Paying Your Credit Card Bill To Help Increase Credit Score
Your payment history and credit utilization ratio are common factors that often account for around 35% to 30% of your credit score. Therefore, the best way to increase your score is to make full and on-time payments. Here are some tips to get you started:
- Set up alerts so you don’t miss your payment due date. Financial institutions make it easy to set up payment alerts online. You can even set up automatic payments if you tend to consistently miss payment deadlines.
- Don’t wait until the last minute. It can take a few days to process a payment so always ensure you make the payment early enough so it can go through before the due date otherwise you risk being hit with a late payment report on your credit report.
- Change your billing cycles. If you’re having a hard month and need more time to make a payment or want all your bills to be due on the same day, reach out to your credit card issuer to see if they are willing to move your billing date.
- Increase your credit limits. As long as you won’t be tempted to overspend, ask to have your credit limits raised on a card or two as that will instantly reduce your credit utilization ratio (just don’t likewise raise your spending, which would defeat the purpose).
- Consider a balance transfer. If you’re presently carrying debt on a high-interest credit card, see if you can successfully apply for a new card with a low- or no-interest balance transfer offer. Then work hard to pay off the debt before the promo period expires.
Bottom Line
Increasing your credit score can sometimes be a confusing and even counter-intuitive process. While it’s a smart financial strategy to keep your credit card balance at $0, you want to make sure that credit bureaus can see that you’re using your card and paying it off each month. For this reason, aim to pay off your balance once your statement has been generated or as close to the payment due date as possible. That way you’ll be better able to grow your credit score without growing your debt.
