Paying your credit card early is very healthy for your credit score. Depending on how flexible it is for you, you can choose to pay your full balances monthly by the due date or earlier. Some people carryover balance from month to month while making the minimum required payment before the deadline.
It might seem irrational to make payment before the due date, but the more you understand how credit cards and credit report work, you will understand it is the best idea under some circumstances. Below are some things you should know when you pay your credit card early.
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Lower Interest Charges
When you carry over a balance on your credit card accounts for months, you automatically accrue interest charges daily, which are usually based on your daily balance. Hence, when you make your credit card payment before the due date, you are automatically lowering your average daily balance. This, in turn, decreases your interest charges massively.
Also, since you receive less interest from saving money in a checking or saving accounts, but pay more for high-interest credit card debt, there are possibilities to save money in the long run by making payments to your credit card immediately.
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Improves Your Credit Score
Paying your credit card balance helps improve your credit score. When your statement period elapses, and a statement is issued, the balance is reported to the main credit reporting agencies as debt, regardless of if you try to avoid interest by making timely payment in full. The above-mentioned debt report can reduce your credit score if your balance is high in a month.
By making timely payment of all or some of your balance, you can lessen your debt-to-credit ratio and improve your credit score. This can influence your chances when applying for a home mortgage or loan.
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Paves Way for Other Needs
If you are supposed to make a big purchase soon, you can quickly utilize your line of credit before your credit card payment is due. Making timely payment frees up available credit for retainment or large purchases. To make a large purchase on your card, you will need space in your available credit. A credit card can be rejected when you use most of the available credit or get close to your credit limit. Surpassing a card’s limit affects your credit score, though most issuers no longer charge over-limit fees.
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Benefits
You get incentives for making early payments. Your accrued interest can be canceled out of the value of your credit card rewards like travel miles and cash back. You can remove interest by paying in full or reduce it by making timely payments. It is a win-win situation, as your card issuer pays you at the same time you pay them.
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Reduces Your Credit Utilization
Paying your credit card balance early lessen your credit utilization. Having a lower credit usage percentage means you have extra money on your credit card for other purchases or other needs. You can pay off large purchases immediately so you can use the card again. To avoid over-limit charges, ensure your payment has cleared before trying to use the card again. If your report is reading 0% utilization, you will not be able to receive all your credit score points. It does not influence your credit as it does not lead to bad credit if you are managing your balance well.
How Soon Can I Use My Credit Card After Making A Payment?
You can commence using your credit card as soon as your billing cycle closes. There is a window period of 21-day and above until your due card. During this period you can offset your purchases without incurring any interest. You are allowed to use your credit card during the window period.
The most outstanding factor in credit scoring is your payment history; if you make timely payment or not. If you are trying to build a strong payment history, you can achieve that by making little purchases on your credit card monthly, offsetting the balance in full, and ensure you make timely payment. It is never a bad idea to make an early payment or when due. The only bad time to pay is after your due date, it has a major negative impact on your credit score. If making a full balance poses to be difficult, ensure you keep your balance as low as possible. The lower your balance, the better your credit score.
