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Will Paying Bills Before They Arrive Help My Credit?

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When it comes to building and maintaining good credit, it’s very important to pay your bills on time. So if paying on time is good for your credit, is paying earlier or faster even better?  A reader, Nicole, wondered if she could improve her credit faster if she sped up the process of paying bills. She wrote:

Does it build credit any faster if I pay off purchases before the bill comes on a credit card or the other way around?

Paying early likely won’t build Nicole’s credit faster, but it could be beneficial to her in a couple of ways, depending on her circumstances.  “You don’t get ‘extra credit’ for paying a bill earlier, says Gerri Detweiler, Credit.com’s director of consumer education. “Most issuers report account information once a month, and whatever is reported is what’s used to calculate the credit score,” she says.

By far, one of the best things you can do to build credit is to pay your bills on time. And as long as you pay by the due date you won’t have to worry about this factor hurting your credit scores.

One way it could help Nicole, though, is with  regard to her her utilization – how much of her available credit she is using. The credit report will typically reflect the statement balance, and it’s a good idea to use no more than 25% (10% is even better) of your available credit. So if she has a credit limit of $1,000, she would want to keep her monthly balance at $250 or less. If she makes some large purchases that would use a significant portion of her available credit, then paying it off before the close of the statement date can be beneficial in order to minimize her reported balance and lower her utilization.

Nicole can find out how this factor is affecting their credit scores by using Credit.com’s free Credit Report Card, which provides a grade for this factor along with the other factors affecting an individual’s scores.

Detweiler says paying early could also save Nicole a little money in interest if she’s carrying a balance:

“Credit cards calculate interest on the average daily balance, which means the higher your balance each day, the more interest you’ll pay.” But she also adds that paying early may not be necessary unless you find that your purchase activity is bringing down your score due to high utilization.

But given that Nicole is able to pay for purchases before the bill arrives, she’s evidently living within her means, and that can make bill payment less stressful. Regular payments will, in time, be reflected in her scores.

Image: iStock

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  • http://www.Credit.com/ Gerri Detweiler

    Chris – I was both interviewed for and quoted in this article, and as Credit.com’s Director of Consumer Education I take full responsibility for my answer. I don’t see what our disagreement is, however. The question was whether it would benefit the reader to pay off her credit card before she even got the bill and I said it was not necessary to pay that early. I specifically said “The credit score will be calculated using the balance that is reported to the credit reporting agencies.”

    Paying faster doesn’t earn her “extra credit” so to speak, which is how I understood her question.

    I also said that “In general, if your payment arrives after the bill was sent but BEFORE THE DUE DATE, you’ll minimize the reported balance,”

    You and I both agree it’s good to pay off the bill before the due date to minimize the reported balance. I am having trouble seeing where we are in disagreement.

    FYI – I will be at an event all day tomorrow so if you respond I won’t get a chance to look at it until later in the weekend.

  • http://blog.credit.com/ Michael Schreiber

    Chris… thanks for your comment. We’ve updated the post accordingly.

  • http://www.Credit.com/ Gerri Detweiler

    Liz – If the timeshare was surrendered in a Deed in Lieu and the information is correctly reported as such, it will stay on your credit report for seven years from the date that occurred. I doubt they will just update it to paid as agreed. You’ll probably just need to live with it on your credit for another two years (if that’s when the 7 years is over.) But you can still focus on rebuilding your credit in the meantime. This article may be useful: How to Improve Your Credit Score

  • Kevin

    Does paying early negate rewards earned on reward/cash cards? Are the rewards being calculated per statement balance, or per monthly charges?

    • http://www.credit.com/ Credit.com Credit Experts

      Rewards are calculated per monthly charge, so paying early won’t cost you any rewards. (Some cards give you additional rewards for carrying a balance, but you’ll pay interest — so it’s a better idea to pay off the balance.)

  • Kimberly Scheiwe

    Ok…I think I finally understand now!! Thanks for breaking it down for me!!!

  • Kimberly Scheiwe

    But. if your balance is under 25-30% of your limit, is it ok to wait a few days to pay before your due date? So when your lender reports to the bureau’s you have a balance versus nothing at all?

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