If you recently made a large purchase with your credit card and have enough money in your checking account to cover the balance, you can pay it off as soon as it hits your account. Running up a balance on your rewards credit card to maximize your earnings is worth the work if you aren’t carrying a balance into the next billing cycle. Paying your balance early won’t hurt your credit score; it may help.
Paying your credit card on time every month is the most important step towards maintaining a strong credit score. Your history of on-time payments accounts for 35% of your overall FICO score, and lenders consider this factor to be the most important when weighing creditworthiness. You’ll remain in good standing with your lender if you make your payments by the due date. But paying off your balance ahead of schedule can positively influence your credit score. Here’s how paying your bill early benefits your credit score:
Reduces interest charges
You won’t have to pay interest if you pay your credit card balance on or before the due date. But if you carry a balance, you’ll accrue interest on the revolving balance. Credit cards typically calculate interest using an average daily balance method, meaning the interest is compounded and accumulates daily. If you pay half of your balance before your billing cycle due date, this reduces the amount used to calculate your interest for the time remaining in that billing cycle — assuming you don’t pay off the remaining balance by its due date. You don’t have to worry about interest charges if you pay off the entire balance.
Decreases credit utilization
Paying off your balance early or making additional payments before the billing cycle ends decreases your credit utilization — or the ratio of your total credit to your total debt. Credit utilization makes up 30% of your credit score, and it helps to keep this number low. When you pay your credit card bill early, your total debt decreases while your available credit increases, benefiting your credit utilization and credit score.
