The lifecycle of a credit card for many people is, on the whole, consistent: invoice expenses for the whole month, be given a bill every closing date, giving payment no less than the minimum, repeat. It is a basic and good approach.
Invariably repaying your bills in full and on time is one of the best ways to maintain or boost your credit score. Do you know why? Well, it’s because payment history is the most critical and vital determinant in credit scoring models. As a matter of fact, according to FICO, payment history accounts for thirty-five percent of your credit score.
Does this approach seem a bit complicated for you? If yes, there’s another way. Read on to know more!
The Ultimate Credit Card Payment Hack
Are you still wondering how to improve your credit score? What if there’s an alternative to repaying your credit card bills that provided more instant benefits and establishes your patent history in the long run? Well, there is! And it is all about repaying your credit card bills early.
This credit card payment tactic keeps your balance lower for the whole month and cuts down the balance your credit card issuer reports every month to the major credit bureaus. In return, your credit utilization ratio lowers and has an immediate impact on the amounts owed, which is the second-most critical credit scoring determinant.
Also, it can aid in reducing the amount of interest you are obligated to pay each month.
How It Can Impact Your Credit Score
For the most part, repaying your credit card bill much earlier may look like this:
- Make invoices for the whole month
- Give in partial or full payments enclosed by the billing cycle
- Obtain a bill on outstanding charges when the billing cycle closes
- Reimburse no less than the minimum before the statement period’s due date
- Do again
Well, the primary perk is to keep your credit utilization ratio lower. For most people, this credit card payment trick is the most actionable and quickest approach they can do to boost their credit score.
Take note that your credit utilization ratio is the total credit you avail oneself of every month, corresponding to the amount available. In general, financial experts suggest keeping your credit utilization rate of at least thirty percent.
However, if your credit utilization rate is higher, it can pose a huge risk to your credit standing. Even so, if you make a payment in partial or full before your monthly card usage is due, the good news is that you can lower your ratio for that time being, possibly having a great impact on your credit score.
It is true whether you bear a balance every month, or you consistently repay all of your balances.
Things To Consider
The following are some of the important factors to consider:
- Credit Limit. Keep in mind that your credit card utilization rate can be impacted by your credit limit as well as your spending. Also, if you have not examined your credit card limits recently, you may be stunned by what you might find. Most credit card issuers have been chopping limits in a proactive manner since they are concerned about risk from the jobs and economy, and perhaps not getting repaid. Oftentimes it is due to the inactivity, and sporadically it is because you are probably doing something that seems risky.
- Statement Closing Date. See to it that you know the exact date your credit billing cycle closes every month if you want to repay your bill early. You will need to repay your credit card bill before the due date to have a positive impact on your credit utilization. Usually, the day after the due date is when issuers report to the bureaus. Keep in mind that all lenders are not the same. Thus, it is wise to contact your lender if you want to know more about your bill or have any questions.
Repaying Your Debt
Making several payments every month or repaying your debt before the due date can be particularly advantageous or favorable for the people who are trying to pay down their credit card debt. If you choose to pay a partial when you get your salary, paying your debt earlier can positively impact your credit score.
In other words, extra or early payments can make a massive difference in the interest you repay over time.
Keep in mind that if you are not actively pursuing good credit habits, changing the way you repay your debt won’t be a big help. Take note that the most crucial factor to remember is to repay your balances on time. Always avoid or steer clear from paying late or missing payments. Also, see to it that you spend only within your means to avoid any negative effects.