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.
So rather than wait for the end of the cycle, you pay your bill early.
That shows you’re responsible, right?
It’s going to reflect positively on your credit report which is great!
Except it won’t.
No Impact On 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 Card Advice From “Experts”
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 them self an “expert” or “guru” in any area they wish without any consequence.
To them at, least.
For you, there may be tremendous consequence 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 of 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, but 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 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.
Pay Off Credit Card Balance The Right Way
When you’re building (or rebuilding) credit, the most important thing is showing responsibility.
The best way to prove your credit worthiness is to have a balance on every statement, and then pay it off 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 checking or savings 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 amount to the credit card payment account
That’s all there is to it, 3 simply 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!
Being smart with how you you 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 of 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!
Questions For You
Do you pay your credit card as you spend? 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?