How to Pay Your Credit Card Bill to Increase Your Credit Score

Credit cards have the ability to help you build good credit when you manage your accounts responsibly. Paying your credit card bill on time and in full each month is a great place to start. Yet these good credit-management practices may not be quite enough if you want to get as much credit-building potential out of the account as possible.

The timing of when you pay your credit card bill can also have a meaningful impact on your credit score. If you’re willing to jump through a few extra hoops and perhaps pay your bill early, there’s a chance your credit score might improve from the effort.

What impacts my credit scores the most?

Credit cards have the ability to affect your credit score from several different angles. In fact, a credit card account can influence all five of the credit score categories that make up your FICO® Score.

The most important detail where your credit cards are concerned is your payment history. On-time payments are essential on your credit cards (and every other credit obligation on your credit report) if you want to earn good credit. Payment history accounts for 35% of your FICO Score.^[1]

Another area where your credit card can help shape your credit score is the “Amounts Owed” category of your credit report. This category is worth 30% of your FICO Score, and your credit utilization in particular plays a major role here.^[2]

Credit utilization is a mathematical calculation of how you manage your credit card debt. The formula used to calculate credit utilization divides your credit card balances by your credit card limits to determine what percentage of your credit limits are in use. If you have a $5,000 balance on a credit card with a $10,000 limit, your credit utilization rate on the account is 50%.

What is the ideal credit utilization rate?

As far as your credit score is concerned, a lower credit utilization rate is best. High credit utilization indicates more credit risk and can drive your credit score down as a result.

Some financial experts recommend keeping your credit utilization rate below 30%. And while that number could be a good initial goal if you’re working to pay down credit card debt, it probably shouldn’t be your final target. According to FICO, keeping your utilization rate below 10% could help you earn a good FICO Score, and a lower utilization rate may be better.^[3]

It’s also not best (from a credit score perspective) to never use your credit cards and keep a 0% utilization ratio on your accounts. FICO notes that consumers with 800+ FICO credit scores use around 7% of their available credit. Consumers in the 650 FICO Score range, meantime, tend to max out their credit cards.^[4]

Does it matter when you pay your credit card?

It’s critical to pay your credit card by the due date on your account for several reasons.

• If you pay after the due date by 30 days or more, your credit could suffer damage from late payments.
• Late payment fees may kick in on your account as soon as one day past the due date.
• Repeated late payments might trigger a card issuer to take actions such as reducing your credit limit or even closing your account.
• If you don’t pay your full statement balance by the due date, you may have to pay interest.

Paying your minimum payment by the due date is the bare minimum you should do when you have a credit card account. However, even if you pay off your entire balance each month, as you should, your credit utilization rate might not behave as you expect.

The importance of the statement closing date

Most credit card companies will only update your account information with the major credit bureaus (Equifax, TransUnion, and Experian) one time per month. This update tends to take place around the time of your statement closing date, when your next statement is issued. So, it’s the balance on your credit card statement that will typically show up on your credit report, not the balance on your due date (or at any other time throughout the billing cycle).

If you want your credit report to show a low or $0 credit card balance, you’ll need to pay your balance down early—before the statement closing date. Otherwise, even if you pay your full statement balance by the due date each month, your credit report may show a balance that could drive your credit utilization rate upward for credit scoring purposes.

Does it help to make multiple credit card payments?

Making multiple payments per month is another strategy that some cardholders use to keep their credit card balances low—and their credit utilization low, by extension. The idea behind the strategy is as follows.

When you make multiple payments it keeps your credit card balance from climbing too high in the first place. Therefore, you’ll be more likely to see a low account balance on your credit report whenever your card issuer sends its monthly update to the credit bureaus.

This payment strategy might be able to save you money on interest as well. However, as long as you make sure to pay off your full statement balance by the due date on your account, you should be able to avoid interest charges altogether on most credit card accounts.

Tips to help you stay on top of your payments

Keeping up with your credit card payments can be a chore—especially if you have multiple accounts. The three tips below could help.

Set up autopay

Most credit card companies will allow you to schedule automatic payments to come out of your checking account. This strategy can be a great way to make sure your credit card payment goes through as you wish, even if you happen to forget to make a manual payment by the due date.

With most card issuers, you should be able to set up autopay in either of the following ways and enjoy the associated benefits.

• Minimum Payment: When you set up autopay for the minimum amount due, it should help you avoid late fees and credit report damage. However, this backup payment method won’t ensure that you avoid paying interest.
• Statement Balance: By scheduling an automatic payment for the statement balance on your account, you can avoid late payments, potential credit report damage, and interest costs.

Set up texts or email alerts

Another feature your credit card issuer may offer is the ability to schedule text or email alerts. Depending on the company, you may be able to set up account alerts to be triggered by any of the following actions.

• Your payment is due in a certain number of days.
• An automatic payment is scheduled soon.
• A payment has been posted to your account.
• The card issuer didn’t receive your payment on the due date.
• The available credit on your account falls below a certain amount.
• Your account balance reaches a certain amount.

Many account alerts, such as the examples above, may be customizable. So depending on the credit cards you hold, you may be able to schedule a series of reminders that fit your lifestyle.

Schedule alarms on your smartphone

In addition to the alerts that your card issuer offers (if available), you may want to set up some alternative reminders on your own. Your smartphone can be a great tool to help you accomplish this goal.

For example, you might want to schedule your own reminders a few days before your statement closes each month. These alerts could remind you to pay down your bill before that important date arrives so you can try to keep your utilization rate low.

Should you ever carry a balance on your credit card?

There really is no scenario where you should deliberately try to carry a balance on your credit card. Revolving a credit card balance from one month to the next can be expensive. Plus, this habit will increase your credit utilization ratio and might impact your credit score in a negative way.

However, there is one scenario where it might not hurt you to carry a balance on your credit card—at least not from an immediate financial standpoint. When you have good credit, you may be able to qualify for a credit card that has a 0% APR introductory rate. With 0% intro offers, you may be able to revolve a balance on your credit card account for a limited time and avoid paying interest. Essentially, it’s a 0% short-term loan.

Keep in mind that just because you may be able to avoid paying interest doesn’t mean there will be no negative side effects from carrying credit card debt. The balance can still cause your credit utilization rate to increase and might hurt your credit score. If you need to apply for new financing during this time and your credit score is lower, you might have to pay a higher interest rate on any loans or credit cards that you open.

Sources

1. myFICO. “What Is Payment History?” https://www.myfico.com/credit-education/credit-scores/payment-history
2. myFICO. “What Is Amounts Owed?” https://www.myfico.com/credit-education/credit-scores/amount-of-debt
3. myFICO. “What Should My Credit Utilization Ratio Be? https://www.myfico.com/credit-education/blog/credit-utilization-be
4. myFICO. “The 5 Secrets of Excellent Credit Score Individuals.” https://www.myfico.com/credit-education/blog/5-secrets-high-credit-scores

About the author

Michelle L. Black is a leading credit expert with over 17 years of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting and debt eradication. See her on LinkedIn and Twitter.

About the reviewer

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.

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