Ever wondered when to pay your credit card bill to increase your credit score & avoid interest? THIS video will give you the answer and explain why :-) Click "Show More" to see Ad Disclosure.
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7 WORDS TO KNOW
1. Statement: Your bill, due each month
2. Balance: How much you owe (total of all your purchases)*
3. Billing Cycle: Period of time between 1 bill and the next (usually 28-31 days; we’ll assume 30 days in this video)
4. Open Date: First day of your billing cycle
5. Close Date: Last day of your billing cycle
6. Due Date: Day your bill is due
7. Minimum Due: Smallest amount you can pay for an on-time payment
*Note: Your balance may include purchases, interest, fees, etc.
STATEMENT / BILL
Your credit card statement is the same as your credit card bill (the words mean the same thing). It shows you how much you spent each month item by item, your interest rate, how much you owe, and a whole lot more. Get familiar with it ;-)
BALANCE
Your credit card balance is how much you owe to the bank. This may include all of your purchases, interest charges, annual fees, other fees, etc.
BILLING CYCLE
Your credit card billing cycle is the period of time between one bill / statement and the next. Each billing cycle lasts 28-31 days and includes the total amount you spent during that timeframe (reflected as your balance). Every billing cycle has an open date / opening date and a close date / closing date.
OPEN DATE / OPENING DATE
This is the first day of your credit card billing cycle. It’s NOT necessarily the first day of the month and it can be different for every card. For example, my American Express credit card had an open date of the 22nd of the month while my Discover credit card had an open date of the 17th of the month.
CLOSE DATE / CLOSING DATE
This is the last day of your credit card billing cycle. It’s NOT necessarily the last day of the month and can be different for every card.
DUE DATE
This is the day your credit card bill is due. It’s about 21-25 days AFTER your billing cycle close date.
MINIMUM DUE
The credit card minimum due is the smallest amount you can pay for an on-time payment. It’s usually 1% - 2% of your total balance. If you only pay the minimum due, the remainder of the balance will be charged interest. How to avoid credit card interest? Pay the FULL balance.
Q&A
Q1: When is the best time to pay my credit card bill / statement?
A: The best time to pay your bill is AFTER the Close Date but BEFORE the Due Date.
Q2: I have a small credit limit. Can I make payments early (during the billing cycle) to lower my balance?
A: Yes. You can make payments at any time, multiple times per month / cycle.
Q3: I heard I should use less than 30% of my credit limit. Is that true?
A: Yes / no. This is a general rule. The higher % of your credit you use, the lower your credit score. Keeping your utilization at 30% or lower helps keep your score higher each month. HOWEVER…Your utilization is reported 1X per month - NOT DAILY. With most banks, only the balance on your Close Date is reported to the credit bureaus (this becomes your utilization for that month / cycle). SO…Best practice is to have 30% or less utilized by your Close Date.
Q:4 If I buy something with my credit card and pay it off right away, will that help my credit score?
A: No. It could actually hurt it. Here’s why…
Your balance & utilization get reported ONCE per month. This happens on your billing cycle Close Date.
For that reason, the bureaus DO NOT see your DAILY utilization.
IF you pay off your charges every time you make them, THEN when your Close Date arrives, your reported balance will be $0.00 and your utilization will be 0%. On paper, it looks like you’re not using your card.
THAT MEANS the bureaus will not be able to properly score your payment history, balances, or utilization and those are the most important factors of your credit score!
SO…PAY YOUR BILL AFTER the Close Date BUT BEFORE the Due Date. This allows a balance to be reported to build positive credit history and avoids all interest.
THINK OF IT LIKE THIS…
- The bureaus DO get a single snapshot in time (a “picture”) 1X per month.
- They DO NOT get live updates 24/7 (like a movie).
Disclosure: This site is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as CreditCards.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. Mark Reese is not a financial advisor.
#creditcards #creditcards101 #creditscore