Is Paying A Credit Card Early Helpful Or A Waste of Time?
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Paying a credit card early can help people with trouble managing money.
Paying a credit card early can give people a sense of control over their finances.
Paying a credit card early isn’t, however, the best thing you can do for your credit score.
You really should wait for the statement to be cut before making a payment.
But, seeing your credit card balance at $0 is a great feeling.
It’s what every responsible consumer aspires to achieve.
Sometimes, in fact, you may be too impatient to wait.
Or, maybe you need to free up some credit.
Or, you understand the benefits of credit but just hate the idea of having consumer debt!
So rather than waiting for the end of the cycle, you pay the credit card early.
That shows you’re responsible, right?
Maybe, but it can also hurt you if you rely on your credit score for anything.
Paying A Credit Card Early Doesn’t Affect Your Credit Score
Payment history is the most heavily weighted component of your FICO score.
If you pay your credit card balance before the end of the cycle, you’ll have no balance.
If you have no balance, nothing will be reported to the credit bureaus.
If nothing is reported to the credit bureaus, you have no payment history.
If you have no payment history, there’s no impact on your credit report and therefore your credit score.
So, while you may think you’re doing good by paying your credit card off early, you’re really not.
At least in terms of helping your credit score.
It may be a very tiny detail, but it’s an important one.
Your credit scores are based on what’s on your credit report.
When your credit card statement cycle ends with a $0 balance, that is what will be reported to the credit bureaus.
In terms of how that’s reflected on your credit report, it’s as though you never used the card during that period.
Bad Credit Advice From “Experts”
Bad advice is everywhere!
There are some people out there who like to call themselves “experts” on a subject to make themselves feel good.
In fact, there is no regulatory body in the world to prevent it, so essentially anyone can call themself an “expert” or “guru” in any area they wish without any consequence.
To them, at least.
For you, there may be tremendous consequences for following the advice of these people who really haven’t got a clue about what they talk about.
Credit building is one of these areas.
There are people who will tell you to pay off your credit card each time you make a purchase.
Some people will say to pay your credit card balance every time you get paid since you know you have the money.
That’s great for people who already have a solid credit history, or if you don’t care about having a good credit score.
That’s not good advice for people who are just starting out (or who are recovering from credit problems) and trying to build up their credit profiles.
It’s important to recognize that not all financial advice is the same.
Some people just make the assumption that all credit-related advice will apply to all people, but it doesn’t.
You need to make sure you’re following advice intended for your individual situation.
When building or rebuilding credit you want to make sure that the credit issuer is reporting a balance and the subsequent (on-time) payment.
That will ensure you are satisfying the credit score component of consistently paying on time.
Paying A Credit Card Early Doesn’t Build Credit
When you’re building (or rebuilding) credit, the most important thing is showing responsibility.
The best way to prove your creditworthiness is to have a balance on every statement, and then pay it off–on time and in its entirety.
This means waiting until your statement closing date to make any payments.
You can pay off your credit card balance the very next day if you’d like, or any day before the payment due date (you want to be responsible after all).
But in order to have any impact on your credit report, you have to make sure there is a balance being reported to the credit bureaus.
When building or rebuilding credit, the two things to remember are:
- Wait for the cycle to end
- Pay off the balance in full before the due date
That will help take care of the biggest piece of the credit score pie, and get you started in the right direction
A Simple Trick For Paying Your Credit Card
Do you pay off your credit card early because you want to make sure you have the money?
Maybe you want to pay your credit card as you spend because you’re afraid to pay late?
If either one is the case for you I have a solution that will solve all your problems and worries.
It’s a simple plan that practically anyone can implement:
- Get a separate bank account and label it “credit card payment”
- Set up your credit card auto-pay and link it to that account
- Every time you charge something to the credit card, transfer that same amount to the credit card payment account
That’s all there is to it, 3 simple steps.
Doing the transfers each will take the place of paying the card time you make a purchase.
Setting up the credit card auto-pay will make sure you don’t pay it late.
The cherry on top is that now the balance and timely payments will both be reported to the credit bureaus so you are actually building a positive credit history.
As an additional bonus, if you use a high-yield savings account your money works for you as you’re saving!
One Time It’s Ok T Pay A Credit Card Early
There is one instance where I find it’s perfectly fine to pay your credit card as you incur charges.
That is when you’re getting ready to buy a home, and especially when you’re a first-time home buyer.
In this specific instance, you want to make sure that your credit is clear of balances so your debt-to-income ratio is as high as possible.
That way, you stand a better chance of not only getting the loan but getting it at the most favorable terms possible!
Being smart with how you use credit cards is a great idea…
There is, however, such a thing as over-thinking, and over-managing.
If you are interested in maintaining or building your credit, then you absolutely want credit card balances to be reported to the credit bureaus.
Then, when you pay off those balances, you get the positive marks of “paying on time”.
That, in turn, will boost your credit score!
Of course, if you aren’t interested in that then you can keep paying as your spend–no harm, no foul!
Do you pay your credit card early, as you make purchases? Do you find it has any benefits that trying my method above wouldn’t replace? If not, what’s your take on the “pay as you go practice?