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.