TPG reader question: Does it hurt to pay off your card balance before the billing cycle ends?

Oct 4, 2021

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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

The factors that make up your FICO score. (Image source: FICO)

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. 

Featured photo by My Agency/Shutterstock.

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