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Reader Question: Does overpaying hurt me with card issuers?

April 10, 2020
4 min read
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Editor’s note: This article is part of a new 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 info@thepointsguy.com. Here at TPG we try to make the best recommendations for credit cards- whatever your situation. Whether you're a travel card guru or a college student seeking to open their first account, we're here to help you make the best of your situation. But what happens if you already have credit cards, use them and then pay- no, overpay- them when your statement closes?

[pullquote source="Vaughn (from Seattle)"]I always pay my cards in full every month and keep my utilization under 5%. Usually, I pay all charges, including pending, about 2 days before each statement closes so that each card would close at zero.

Because of this strategy, I will sometimes overpay if pending charges are close to the closing date. This sometimes results in having a credit at closing.

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Since my utilization is low on each card and my limits are relatively high, it shouldn’t read as a back channel limit increase, but I’ve heard horror stories about people who’ve overpaid their cards.[/pullquote]

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Why you shouldn't overpay your credit cards

Fortunately for Vaughn, overpaying your credit card doesn't hurt your credit score. Credit card companies have no way of indicating a negative balance on your card, so your surplus balance will instead be shown as $0. Still, you should avoid overpaying your card as much as possible. Why? Because every penny you pay in excess of your balance faces an opportunity cost. Credit card accounts don't bear interest on your surplus payment, so this is worse than, say, simply stashing those funds in a low-yield savings account.

There's another reason, though, that overpaying isn't a good idea. While banks are mandated to make a good-faith effort to refund your money if your card goes unused for six months, there's no guarantee that you'll receive it. If you're no longer at the same mailing address, it's very possible that you'll miss the money. Once the effort is made, credit card issuers are then absolved of their duties and that money can be lost.

You can always request a check from the bank before the six months, though you'll often have to call or email in order to make the request.

What is the right credit utilization?

It can be difficult finding the right amount of credit you should be using each month. Vaughn states that he likes to keep his credit card utilization under 5%, and this is a good amount. While some experts say that you should be wary of utilizing more than 30% of your credit at any given time, there is no hard and fast rule for how much you should maintain on a monthly basis.

One thing to be aware of, however, is the danger of keeping your utilization at a flat 0% at all times. While this may make sense in theory- as in, "I always pay the banks on time and never owe money at statement close."- in reality, it could damage your credit score. If you always pay all your balances before your statement closes, other banks will it simply looks as if you've never used your card at all. Of course, the goal of a credit score is to establish that you're a reliable borrower, and one who never borrows appears to be a much riskier choice than someone who regularly charges and then makes payments when they're due.

Related Reading: 6 things to do to improve your credit

Bottom line

While it won't hurt you or your credit score to overpay your credit card, you shouldn't do it. The money you're giving the bank can instead be used for much better things, even something as simple as a savings account. It can also be difficult to recoup that money if you don't end up using it or the card. Overall, it's just a better idea to pay what's due and keep the rest in your pocket.

Featured image by (Photo by Orli Friedman / The Points Guy)

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Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
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6X6x points at hotels participating in the Marriott Bonvoy® program.
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  • Intro Offer
    Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.

    Earn 100,000 points
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    $125
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Excellent/Good

Why We Chose It

The Marriott Bonvoy Business Amex is a stacked card with a rewards rate that will help you earn bonus points on everyday and business-related purchases. You'll earn 15 elite night credits each calendar year, and receive automatic Gold elite status. Finally, the free night award certificate with a redemption level of 35,000 points or less can get you hundreds of dollars in potential value each year.

Pros

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  • 4x points at restaurants worldwide, U.S. gas stations, wireless telephone services purchased directly from U.S. service providers and U.S. shipping
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  • Receive 15 elite night credits to jump-start status
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  • Airline points transfer ratios are poor
  • Must spend $60,000 in a year for second free-night award
  • Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.
  • 6x points at hotels participating in the Marriott Bonvoy® program.
  • 4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
  • 2x points on all other eligible purchases.
  • Receive a 7% discount off standard rates for reservations of standard guest rooms at hotels that participate in the Marriott Bonvoy program when you book directly. Terms and Conditions Apply.
  • Receive 1 Free Night Award every year after your Card renewal month. Plus, earn an additional Free Night Award after you spend $60K in purchases on your Card in a calendar year. Awards can be used for one night (redemption level at or under 35,000 Marriott Bonvoy® points) at hotels participating in Marriott Bonvoy®. Certain hotels have resort fees.
  • Enjoy Complimentary Marriott Bonvoy Gold Elite Status with your Card.
  • Terms apply.
  • See Rates & Fees