TPG reader question: Does it hurt to pay off your card balance before the billing cycle ends?
Editor’s note: This article is part of our weekly column to answer your credit card questions. If you would like to ask us a question, tweet us at @thepointsguy, message us on Facebook or email us at tips@thepointsguy.com.
Understanding and maintaining your credit score is one of the most important parts of a successful financial (and travel) plan.
Not only does it help you avoid making costly mistakes, but it will also make sure you stay eligible for some of the most valuable sign-up bonuses and welcome offers for points and miles. TPG reader Connie McCarroll wants to know when exactly she should pay her bills and if it’s possible to pay too early.
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Does paying off credit card balances before the end of a billing period make it appear like you are not using your credit cards at all? If so, would it be better to wait until the billing period has ended and then pay off the balance?Connie McCarroll
Keeping your credit score high requires a thorough understanding of the factors that influence it. While the exact formula used to convert your financial history into a single number is a closely guarded secret, the factors that are analyzed and the weight they are given is very much public information.
Related: How to check your credit score for absolutely free
Your monthly credit card balances fall under the “amounts owed” section, often referred to as “utilization,” which accounts for 30% of your score. This number is reported as the ratio of your balances to your overall credit limit. If you spend $2,500 on a card with a $5,000 limit, your utilization will be 50%. But if you spend the same amount on a card with a $20,000 limit, your utilization will only be 12.5%.
Generally, the lower your utilization is, the higher your credit score will be. If you’re maxing out all your available credit lines, banks see you as a riskier customer. According to Credit Karma, a 9% or lower utilization ratio is ideal, though 10-29% is also considered “good”.
Related: How does applying for a new credit card affect my credit score?
If you pay your balance before the end of the month, your credit card will report a lower number for the amounts owed to the credit bureaus, and your utilization ratio will remain low, improving your credit score over time. If you’re not in a financial position to pay your bills early, don’t worry. When you make your payment (usually two to three weeks after), that information will be reported to the credit bureaus and your utilization ratio will come down.
You can even use this strategy to your advantage. If you’re applying for a mortgage or car loan, where a higher credit score can save you some serious money on interest, it might help to pay off all your credit card balances before applying. Not only can this increase your chances of loan approval, but it also might land you a more favorable interest rate.
Related: 6 things to do to improve your credit in 2021
One final thing to keep in mind is that, even if you don’t want to pay your entire balance off before the statement close date, it could be worth paying off a specific large purchase to avoid a big change to your utilization ratio. For example, one TPG staffer charged $7,000 in expenses to his Chase Sapphire Reserve and decided to pay it off before his statement closed.
His reasoning? Otherwise, his utilization ratio on the card would have appeared to be more than 40%, potentially impacting his credit score.
Bottom line
There’s no harm in paying off your balances early, and it can even help keep your credit score sky-high.
Even if there aren’t any $0 balances being reported to the credit bureaus at the end of the month, your on-time payment history and length of account history will continue to work in your favor building your credit score. Of course, the most important thing is not to miss a payment and avoid racking up expensive interest. As long as you make sure to pay your bill by the due date, you’ll be fine.
Thanks for the question, Connie, and if you’re a TPG reader who’d like us to answer a question of your own, tweet us at @thepointsguy, message us on Facebook or email us at tips@thepointsguy.com.
Additional reporting by Chris Dong.
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10X | Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel |
5X | 5X miles on flights booked through Capital One Travel. |
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Intro Offer
Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel75,000 bonus milesAnnual Fee
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Why We Chose It
The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.Pros
- Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
- Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
- 10,000 bonus miles (worth $100 toward travel) each account anniversary.
Cons
- The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
- If you don’t travel frequently, this might not be the best card for you.
- Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
- Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
- Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
- Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
- Earn unlimited 2X miles on all other purchases
- Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
- Receive up to a $100 credit for Global Entry or TSA PreCheck®
- Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
- Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
- Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023