When to pay credit card bill?
Knowing when to pay your credit card bill isn’t as easy as it sounds. Most people will strive to pay their balance a few days before their due date. However, leaving things to the last minute is never a good idea as there’s always a chance you forget.
The most important thing to understand is that you should always pay your bills in full and on time, as it’ll have a positive effect on your credit score. That said, how and when you pay your bill is a personal decision. Let’s break down how the billing cycle works.
Paying Your Credit Card Early
Paying your credit card early is a popular choice for people since it keeps your balance and credit utilization ratio low. This will allow you to manage your budget and keep your credit score in good standing.
How often you pay your bill early is up to you. Some people choose to pay their credit card bills weekly. This strategy is also beneficial as you can check your weekly transactions for any suspicious activity. You can also check your balance any time by logging into your account.
A more common bill payment strategy is to pay your bill as soon as your monthly statement arrives. Generally speaking, you’ll have about two to three weeks to pay once your statement is available. As long as you pay before the deadline, you won’t incur any interest charges.
At the very least, make sure you pay your credit card balance a minimum of three business days before your balance is due. That’s because it can sometimes take a while for the funds to appear on your credit card. By giving yourself a three-day buffer, you’re ensuring that the money has enough time to clear.
How do you do the 15/3 payment?
The 15/3 credit payment hack is/was a popular trend in the U.S. The idea is that you would pay part of your balance 15 days before your statement date. You would then make a second payment three days before your statement date.
This strategy was implemented because some people believed that it would create a double payment, which would improve your credit score. While a lower credit utilization ratio can help your credit score, making multiple payments don’t make a difference. Credit card providers in Canada only report if your payments were made on time and how much credit you’re using to the two credit bureaus: Equifax and TransUnion. The number of payments you make in a month has no relevance.
How to Read Your Credit Card Statement
If it’s your first time looking at a credit card statement, it can be a bit complicated to understand. Here’s a list of the most important sections:
Statement date. Every month, all of your activity is compiled into a single statement. The day this happens is known as the statement date. Any activity that happens after this date would appear on your next billing cycle. For example, your statement date could be April 15.
Statement period. This is the period during which your billing cycle covers. Any purchases, payments, and returns made during this time would appear on your statement. Statement periods can vary by the financial institution. For example, your statement period could be March 16 to April 15.
Transaction/activity. Credits and debits made to your account would appear under the activity/transaction section. It would list the transaction date, posting date, activity description, and amount.
Minimum payment. As long as you make the minimum payment, your payment history will be in good standing. That said, carrying a balance comes with interest charges and it could lower your credit score.
Payment due date. This date is the deadline to pay your bill without incurring any interest charges.
Credit limit. This is the total limit you have available on your credit card.
Is it better to pay off your credit card or keep a balance?
Some people believe that keeping a balance on your credit card will help improve your credit score, but that’s simply not the case. As long as you're making regular purchases with your credit card and paying off the balance, your credit will be in good standing.
To be clear, it’s always better to pay off what you owe rather than maintain a balance. Not only will your credit utilization ratio be lower -- one of the metrics to determine your credit score -- but you’ll also avoid any interest charges.
While most people strive to pay their bills in full every month, behaviour has changed over the years due to rising inflation and other financial priorities. According to a CardSense survey done by MarketSense in 2022, 35% of those surveyed only pay part of their credit card balance each month. That's up 5% from the previous year. In addition, among those carrying a balance, almost half admit they are having trouble making their credit card payments each month, and one-third are juggling due dates across multiple cards.
What happens if you don’t pay your credit card bill?
If you miss a payment, you’ll incur interest charges on any outstanding balance. Note that interest would be calculated from the day you made the purchase, so it can add up quickly.
Generally speaking, missing one payment won’t have a lasting impact on your credit history. That said, missing two payments in a row or in a 12-month period could have serious consequences. In most cases, you’ll see your credit score drop dramatically. In addition, your credit card provider will usually increase the interest rate on your card.
Always make at least the minimum payment on your credit card, so you don’t have any missed payments. Now if you missed a payment by accident, call your credit card provider right away. If you immediately make the payment and ask for forgiveness, there’s a good chance that they’ll waive the interest charges and you can avoid any negative impact on your score.
Improve your credit score by paying early
According to Equifax Canada, your payment history accounts for 35% of your credit score calculation. In addition, your used credit vs. your available credit (known as your credit utilization ratio), accounts for 30%. When combined, that’s 65% of your credit score, which is why paying off your credit card bills early can help you improve your credit score.
For example, if you’re always making early payments, you’ll know that your payment history is always in good shape. There are no late or missed payments to worry about. Plus, when you pay your bills early, you’re always keeping your credit utilization ratio down.
Since your credit history is vital to your credit score, you’ll want to ensure that you’re using a credit card that helps you. Although KOHO is a prepaid credit, which doesn’t normally build your credit score, you can choose to build your credit history with Credit Building. As long as you make your payments on time each month, your credit history will build. Over time, you should see an increase in your credit score.
Other tips to help you manage your bills
Besides paying your bills early and in-full, there are a few tricks to help you manage your credit card bills.
Check on it once a week. Every week, you should check your transactions to ensure they’re accurate. If you notice anything suspicious, you’ll want to investigate further.
Sign up for alerts. You can opt-in to receive push notifications or emails whenever a charge is made to your credit card. This will help you prevent any fraudulent activity.
Ask for a different billing cycle. You can ask your financial institution to modify your statement date. By doing this, you could line it up to when you get paid, so you always have funds available to pay your bills.
Set up automatic payments. You can set up automatic payments to your credit card, so you never miss a deadline. This can be the full amount due or a set number.
Barry Choi is an award-winning personal finance and travel expert. He regularly appears on various shows in Canada and the U.S., where he talks about all things money and travel. His website - Money We Have - attracts thousands of visitors daily, looking for the latest stories on travel and money.