Question: Will paying my credit card bill before the due date improve my credit score?
Answer: Paying your credit obligations on time is very important, as it demonstrates you are paying as agreed—which is heavily weighted in credit scores. In fact, FICO indicates that approximately 35% of your FICO score is based on previous payment history information. Therefore, it may seem logical that paying the amount owed in advance of the due date would result in even more points.
In all likelihood, unfortunately, paying in advance of the due date has no incremental positive effect on your credit score. This is because of how lenders typically report information to the credit reporting agencies. Many consumers mistakenly think that every time they make a purchase on their credit card or submit a payment, the updated balance is immediately sent to the credit reporting agencies. In reality, lenders typically send an update of your credit obligation activity to the credit reporting agencies about once a month. The exact date when your account update information is sent to the credit reporting agencies is determined by each individual lender.
[Resource: Not sure where you stand credit wise? Get your Free Credit Report Card to find out.]
The credit reporting agencies receive and process millions of updates each day given that there are thousands of banks, retailers, auto financial dealers, etc., and millions of U.S. consumers with active credit obligations. The principle reason why the reporting is typically staggered across a given month is due to the sheer size and volume of information being transmitted on a daily basis.
This is why the information reflected on your credit accounts at the credit reporting agency is a “snapshot” of the activity, balance, etc., from the last time the lender sent an update. While paying in advance of the due date has limited impact on your credit score, many consumers follow this “peace of mind” practice to be doubly sure their payments are received on time. In addition, doing so can potentially reduce your cost of credit if it reduces the amount of principal you owe.
Tom Quinn Tom is Vice President of Scores at FICO (Fair Isaac), and has more than 25 years of experience in the credit industry with previous positions at FICO, Nomis Solutions, MDS (now known as Experian) and Citibank.
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