Is there a “best” time to make my credit card payments?

You probably know that it’s important to make your credit card payments on time. Paying on time means that you’ll avoid late fees and reduce interest charges. On-time payments also help to protect your credit history and preserve or improve your credit score. But are there other variables? For instance, does it matter whether you pay your credit card bill early or just before the due date? 

Here’s what you need to know about the best way to manage the timing of your credit card payments. 

Your Credit Card Statement

The first step toward successful credit card management is understanding your statement. There’s a lot of information included in your monthly credit card statement, but you may not know how to use that information to your advantage.

Basic Information About Your Account and the Payment Due

The payment due date, outstanding balance as of your statement closing date (also known as the statement balance), and minimum payment required by the due date are the key items on your statement. Note that the due date is the date that your payment must be received, which may be later than the date upon which you initiate payment. This is true even if you’re paying online since some systems cut off at a certain time of day or credit payments the next business day. Make sure that you understand when you’ll need to process your payment to be sure it’s counted as on time.

If you pay by the due date, the statement balance is the full amount required to clear your account. The minimum payment is the amount that you must pay by the due date to keep your account in good standing. Minimum payments are calculated in different ways, depending on the terms of your credit card agreement. Often, this payment will be 3%-5% of your outstanding balance.   

Credit card companies like when you pay the minimum payment or some other relatively small amount because they can charge you interest on the remaining balance. Some even offer cashback on purchases, but this isn’t always profitable. If you don’t pay off the purchase promptly, you will likely pay much more in interest than you receive in cashback benefits.

Boxed Information and How to Use It

There are two different types of important boxed information associated with your credit card billing. The first appears on your credit card statement. 

Depending on how much you owe and how much your minimum payment is, this box contains one or two types of information. The first, which is always present, is the number of months it will take to pay off your current credit card balance if you make only the minimum payment. This line also includes the estimated total you will pay. With this information, you can easily see how long it will take to pay off your debt and how much more it will cost you to pay this balance over time. Of course, this information is based only on your current credit card balance. If you make additional purchases or take cash advances, the numbers will change.

If it will take more than 36 months to pay off your credit card by making only minimum payments, then a second type of information is included. This second entry will show how much you would have to pay each month to pay off your balance in three years. It will also show the total amount you would pay across those three years—again, assuming that you make no additional purchases. 

If you compare these two lines, you will often find that you can cut several years off your credit card payments by increasing your monthly payment to the specified amount. You may also save thousands of dollars by paying that fixed amount for 36 months rather than the newly calculated minimum payment each month.

The Schumer Box

The second type of boxed information is often called the Schumer Box. It gets its name from U.S. Senator Chuck Schumer who advocated to make this information clear and obvious to consumers when he was a U.S. Congressman in the 1980s. The Schumer Box doesn’t appear on your credit card statement. Rather, this information is found in your credit card agreement. If you are comparing credit cards before applying, you can find this information on the issuer’s website. 

This information can help you understand how much using your credit card will really cost you. It includes the annual percentage rate (APR), the amount of any penalty APR and when it applies, and information about any fees associated with your credit card. One other important thing you’ll find in the Schumer Box is your grace period. This is the period of time when your new purchases will not accrue interest. Not every credit card issuer offers a grace period. If your card does have a grace period, it typically applies only to purchases. 

It works like this: You make a purchase with your credit card on July 12. Your statement closing date is July 14, so your billing cycle ends and you receive a bill. You must be sent your bill at least 21 days before your due date. So, perhaps you receive your bill on July 17 and your due date is August 10. If you weren’t carrying a balance before and you pay off your purchase by August 10, you won’t pay interest on those new purchases. Note, though, that this only applies to new purchases. If you’re carrying a balance, you will be charged interest on that previous balance. 

The information you receive from your credit card issuer may not use the words “grace period.” You’ll find this information in the Schumer Box in the section about paying interest. 

How to Pay to Avoid Interest Charges

Take Advantage of Your Grace Period

If you have a grace period, you can avoid additional credit card interest charges by paying your bill in full by the due date. However, you’ll lose the benefit of the grace period if you don’t pay off the full balance. As soon as your due date rolls around, you’ll start accumulating interest on the new charges. And, if you carry the balance from month to month, you’ll continue to accrue interest. The good news is that any time that you pay off your balance in full, you cut off the accrual of interest and have a new chance to pay off your balances each month and avoid interest.

0% Interest Deals

0% interest deals are typically temporary and usually offered when you open a new credit card account. The no-interest deal commonly lasts for six months but could be for as long as a year. Usually, the 0% interest offer applies only to purchases and not to cash advances. But, sometimes a credit card issuer may offer 0% interest on balance transfers. This means that you may be able to move a balance that is accruing interest on a different card to the new card and eliminate interest for a time. Ideally, you’ll pay off the balance during that time and never pay interest.

If you’re opening a 0% APR credit card, make sure you fully understand the terms. For example, many issuers offering limited-time 0% APR will terminate the no-interest period and start charging interest if you are late with a single payment.

It’s also very important to understand the difference between 0% APR and deferred interest offers. These two types of offers look very similar, but a deferred interest arrangement is much more dangerous. These terms are often offered by retailers, especially those selling big-ticket items like furniture and appliances.

With a true 0% APR contract, you won’t accrue any interest during the 0% period. But, with a deferred interest agreement, the interest accrues all along—you just don’t have to pay it yet. If you pay off the full balance within the specified time, you’ll never have to pay that interest. But, if you owe even a small amount when the time expires, all of the unpaid interest from the previous six months will come back and be added to your balance. 

Minimizing Interest

If you can’t pay your balance in full every month, you may still be able to reduce the amount of interest you pay by paying more than the minimum payment. This approach will help you reduce the balance that you’ll be paying interest on moving forward. And, if you pay early, you’ll reduce the number of days that interest will accrue on the amount you pay. In short, the more you pay and the sooner you pay it, the less interest you’ll pay overall.

Managing Your Credit Card Payments

It’s usually a good idea to pay more than the minimum required each month, even if you can’t pay the balance in full. But, there are times when it’s okay to make minimum payments. One example involves if/when you’re in a 0% APR period and making only minimum payments will allow you to pay off the balance before you start accruing interest. Not sure? Divide your current balance by the number of months remaining in your 0% period. If that number is less than your minimum payment, you’re good as long as you don’t run up additional charges on your card. 

It’s always better to make your minimum payment than to skip a payment or pay late. So, if the minimum is all you can afford to pay by the due date, do it. You’ll want to avoid late payments for several reasons, including: 

• The possible early termination of a 0% APR period or other promotional interest rate

• The risk of an increase from your current interest rate to a penalty rate

• To avoid being assessed a late fee of up to $29 for the first late payment and up to $40 for later late payments

• To avoid a negative entry on your credit report (depending on how late the payment is)

Make sure that you know how long it takes for your credit card company to post a payment and when the cutoff is to get credit for an on-time payment. Try to pay a few days ahead to make sure that your payment is credited on time or look into setting up autopay to ensure on-time payments.

How to Pay to Maximize Credit Scores

Using too much of your available credit can have a negative impact on your credit score, even if your payments are made on time and your account is in good standing. The measure credit bureaus use is called the revolving utilization ratio (RUR). Calculating your RUR is simple. 

First, add up your credit card balances. 

Then, add up your credit card limits.

Divide your total credit card debt by the combined limit. The result should be less than .30 (30%). If it’s higher, your credit score may take a hit. If it’s a lot higher, your score may drop significantly.

Credit card companies report your RUR at the close of a billing cycle. So, making payments earlier in your billing cycle can be helpful. Early payment can mean a lower credit utilization ratio when your credit card issuer reports to the agencies. This is especially useful if you’re applying for a mortgage or other big-ticket financing. Lenders consider your credit score not just for approval, but also in determining which interest rate to offer.

Let’s Summarize…

Making your credit card payment on time is important, but there’s more to successfully managing credit cards. You’ll pay less interest, avoid late fees, and protect your credit if you: 

• Pay off your balance in full each month if you can

• Pay more than the minimum payment, even if you can’t pay the full balance

• Make sure your payment is on time since being even one day late can cost you

• Keep your credit utilization rate low to avoid a negative impact on your credit score