When to Pay Your Credit Cards to Build Credit

Should you make your credit card payment on the due date to build credit? Or is there another time of the month that’s better for improving your credit score? It depends on the credit card issuer, but you should pay on or before the due date to avoid late payments and potential damage to your credit score. It’s best to pay your balance in full each month, but making the minimum payment will also help. You may also want to pay your balance down when it reaches a certain percentage of your credit limit. We will cover the details so you can build your credit score with on-time credit card payments.

The Role of Credit Cards in Credit Building

A credit card helps creditors assess your ability to stay on top of expenses and manage debt. All of your purchases play a role in building credit. Using your credit card responsibly will make lenders feel more confident that you can take out a loan and make on-time payments. Credit bureaus will also recognize prudent credit card usage and raise your credit score as you pay off your bills. However, any late payments or accumulating debt will hurt your credit score.

While credit cards can help with credit building, you won’t receive the same luxury as debit cards. These cards pull funds from your checking account, and credit bureaus don’t check your bank accounts to assess if you can keep up with monthly loan payments. Some apps let you connect a line of credit with your debit card so payment history gets reported. However, credit cards offer a much simpler alternative and often come with great rewards.

How Paying Credit Cards Affect Your Credit Score

Paying your credit cards affects your payment history and credit utilization ratio, the two most important components of your credit score. Here’s why:

• Payment history makes up 35 percent of your credit score. When you make payments on time, a positive payment history shows up on your credit report. It could improve your credit score over time. However, your credit score could drop significantly if you miss a payment and the account reaches 30 or more days past due.
• Amounts owed to creditors account for 30 percent of your credit score. Ideally, you want to keep the credit utilization on your credit cards at 30 percent or lower – 10 percent or lower is even better if you want to achieve a good or excellent credit score.

You should strive to pay your bill in full each month instead of settling with the minimum payment. Making the minimum payment will keep your account in good standing, but letting debt sit around can hurt your credit utilization ratio. In addition, most credit cards have high interest rates, which make it more difficult to repay the debt once you have let it build up for a while.

An Overview of the Credit Card Billing Cycle

Credit card billing cycles can fluctuate from month to month but range from 28 to 31 days, as outlined by the Consumer Financial Protection Bureau. If you don’t make a payment before the end of the billing cycle, it isn’t marked as late right away. You have a grace period after your billing cycle concludes, which can keep your credit in good standing.

Credit cardholders can pay off debt up to 21 days after the billing cycle ends before it’s marked as a late payment. Some credit card issuers have more lenient grace periods. You can learn more about your credit card billing cycle by viewing your monthly credit card statement.

When Do Credit Card Companies Report Payments to Credit Bureaus?

It depends on the credit card issuer. Most credit card issuers report on a specific day each month, which could be before or after your due date. So, you want to reach out to your credit card issuer directly to confirm so you’ll know when to make your credit card payment(s) each month. If you pay everything before the end of the billing cycle, your credit score won’t get hurt, but your payment history can impact your score quicker if you repay the debt before the issuer reports to the credit bureaus.

When to Pay Your Credit Card Bills

The best time to pay your credit card debt is right now. It’s a best practice to pay off your credit card debt as often as you can. But, looking beyond this simple answer, there is an optimal time to repay your credit card balance.

Paying Before the Due Date

Of course, if possible, you want to pay your credit card balance before the due date. But it’s equally important to keep the reporting date in mind, which is typically close to the statement closing date. If you miss the statement closing date but repay everything before the due date, it will take an extra month for that payment history to show up in your credit report.

Paying After the Statement Closing Date

Falling behind on credit card payments could have severe consequences for your credit score. It is best not to carry a balance into the following billing cycle. But if you pay your statement balance in full each month, you won’t have to worry about fees, penalty APRs and adverse credit reporting.

Paying Multiple Times in a Billing Cycle

Your credit utilization rate should stay below 30%. If utilization gets close to 30% or exceeds it, you should prioritize paying down your credit card balance to preserve your credit rating. You could end up making several payments each month to stay below the 30% threshold, but you’ll also prevent a high rate of utilization from hurting your credit score. You have time to lower your credit utilization ratio before the credit card issuer provides the major credit bureaus with the latest update.

Paying multiple times in a billing cycle can increase the likelihood of paying off the full balance from the previous month. Gradually chipping away at your credit card bill with early payments instead of making a lump sum payment at the end of the month can help you avoid interest charges.

Paying Your Credit Card Balance in Full

If you pay your credit card balance in full each month before the credit card issuer reports to the credit bureaus, your credit score could benefit. Your credit report will reflect a utilization rate of zero, which positively influences your credit score. This is the best way to approach credit card ownership. If you only spend what you can afford, it’s easier to keep your credit in a good position and never fall behind on debt. Trimming expenses and looking at additional income opportunities can help you pay your credit card balance in full each month.

Keeping Credit Card Accounts Open

It could be tempting to close old credit card accounts with a zero balance that you aren’t currently using. However, you run the risk of losing points on your credit score if you close your account. Your credit history is one of the key factors in your credit score, and this component improves your score as your credit lines get older. The average age of credit accounts makes up 15 percent of your credit score. Closing old accounts will decrease the average age of your credit accounts and can have a negative impact on your credit score.

Things to Do with Your Credit Card to Build Credit

Beyond paying your credit card bills early or on time each month and keeping your utilization low, here are some ways to use a credit card to build credit:

• Ask a family member or friend to add you as an authorized user on their credit card. You’ll benefit from their positive payment history and establish credit faster. However, your credit score will take a hit if the primary cardholder falls behind on payments. This route is only a good idea if you know people who manage their money well.
• If you can’t get approved for an unsecured product, apply for a secured credit card and keep the balance at zero. This will guarantee a good credit utilization ratio. If you use the secured card and pay it off each time you use it, you will also build a good payment history. Some secured credit cards have annual fees, but you can find plenty of cards that do not charge this additional fee.
• Get a higher credit limit. Some banks let you request a higher total credit limit every few months. If your payment history looks good, you may get rewarded with more credit. It’s also possible to find a financial institution that will automatically raise your credit based on your money habits.
• Monitor your credit report to ensure your accounts are reported correctly and that no errors exist. If you notice inaccuracies, file disputes right away to have them rectified. This strategy can result in immediate credit score gains. You can obtain a free copy of your credit report each year from each of the three major credit bureaus.
• Keep track of your expenses to ensure you don’t have an unmanageable outstanding balance. Effective budgeting is an essential factor that determines how much credit you can build. A good payment history will also increase your available credit, which will lead to a higher credit utilization ratio.
• Enabling automatic payments can help you stay on top of your credit card bills and avoid late fees.

Consider a Secured Credit Builder Card to Build Credit

If you are looking to build credit, one option to consider is a secured credit builder card. Secured credit builder cards offer a structured way to cap spending while building creditworthiness. Using a secured credit builder card responsibly and making timely payments can gradually improve your credit score over time.

Frequently Asked Questions