When to pay credit card bill?

January 6, 2013 12:09 PM

Is it best to pay credit card balance right away or when it's due to improve credit?

I am working on building my credit and I have a secured card through my bank right now. I was told to use it but never use more than about 40% of my limit. I'm just not sure if I should continually use it at that amount and pay the balance or use it up that amount each month, wait for a bill, and then pay the balance off. I'd really like to buy a new car soon so I'm looking for fast ways to improve my credit. Right now I have a "thin file" and no score at all - just a few unpaid medical bills I'm paying off this week.

posted by Raichle to work & money (11 answers total)

I don't think it matters when you pay, as long as you pay the full amount before the due date on your bill.
posted by gramcracker at 12:12 PM on January 6

The balance they report to the credit bureau is the statement balance as of the end of your billing cycle. If your balance on that date is $0 because you pay the card continuously as you make charges, it will look like you aren't using the card.

In short: if you want them to report a balance, wait for the statement to be issued, then pay the card off before the due date.
posted by payoto at 12:15 PM on January 6 [11 favorites]

For your credit score, it only matters that you pay on time and in full, but for your finances, of course, it's best to hold onto the money in your own interest-bearing account until the bill comes due.
posted by treehorn+bunny at 12:16 PM on January 6 [1 favorite]

For the past couple of years or so I have been spending about 50% of my available credit and paying in full every single month well before the due date, and with no other possible avenues of credit delinquencies (every single bill is on autopay, I have no loans and no inquiries have been made on my credit), my score has actually gone down. The way I earned my previously stellar credit was to have a high interest, low-limit card which I never, ever used for anything. I just paid off the monthly fees every month for 2-3 years. This gave me an 800something credit rating. Now I am down to the low 700s simply for spending my own money.

tl;dr I think the 40% is a huge overestimation; I would go for something around 15-20% per month, with one full payment as soon as the amount is posted to your account.
posted by elizardbits at 12:47 PM on January 6

I think the rules have changed a lot since the bank meltdown. I had old credit accounts that I had opened to take advantage of 90 days free interest or whatever, paid off the one purchase, and never used again. They sat ignored, for 10+ years in some cases. Over the last 2 years I've been getting letters informing me that they are being closed for non-use, then 2 months later my credit score drops due to the reduction in available credit.

The whole system is bullshit.
posted by COD at 12:56 PM on January 6 [2 favorites]

In addition to having a good credit rating it is also useful to have a good credit history, if you borrow $500 and make the minimum payment each month for a few months that will look much better to the bank than if you just pay it all off - they want suckers who will pay them lots of interest!!
posted by Lanark at 1:02 PM on January 6

they want suckers who will pay them lots of interest

This is partly correct. I have a card which I use exclusively instead of a debit card and pay it off in full each month (earning many air miles in the process).

Businesses which offer credit card facilities to customers do so as a result of entering into a merchant services agreement with Visa/Mastercard/Amex. This isn't free, but businesses know they need to be able to take cards, so they suck up the fees and build them into their pricing.

So each time I use my card the credit card company earns money. Ideally the card company likes people who use the cards a lot but don't pay them off each month so it earns the merchant fees and also gets to charge interest to the cardholder on the unpaid balance, but it's still earning money from people like me through the fees paid by the businesses who take my card payments.
posted by essexjan at 1:13 PM on January 6

These credit-gaming tactics that people like to talk about really have very little practical impact. Don't let your bills get late, don't borrow too much, and you'll be ok. Nobody ever got denied a home loan because they paid their credit card two days before it was due, or used 41% of the available limit.

You have to remember that a credit score is not a goal in itself, it's just a tool used to help you borrow more money in the future. How much it matters depends on what sort of borrowing you need to do in the future. Obsessing about tiny credit score fluctuations is no healthier than doing the same for your weight.
posted by tylerkaraszewski at 2:11 PM on January 6 [4 favorites]

In addition to having a good credit rating it is also useful to have a good credit history, if you borrow $500 and make the minimum payment each month for a few months that will look much better to the bank than if you just pay it all off - they want suckers who will pay them lots of interest!!

Paying interest does not improve your credit score, and so paying the statement balance every month (taking advantage of the grace period) is your best option.
posted by one more dead town's last parade at 3:29 PM on January 6

Over the last 2 years I've been getting letters informing me that they are being closed for non-use, then 2 months later my credit score drops due to the reduction in available credit.

The whole system is bullshit.

Not really. Accounts closing for no reason is a bit of a red flag. The whole point of the credit scoring system is for creditors to compare notes. The more people who have extended you credit without getting burned, the lower your risk/the higher your score. Or, from another metric, the more dollars you have in available credit, the safer you appear. When that amount goes down, your apparent credit risk goes up. They don't know why someone pulled back their credit line with you, they just know you did. An account closing says, to some extent "we don't want to loan this guy money anymore."

As for when to pay the bill, you pay it when you get it. It doesn't have to be any more complicated than that.
posted by gjc at 6:19 PM on January 6

Paying your bills in full and on time will build your credit.

Not paying your bills in full and on time will hurt your credit.

Insufficient credit history will hurt your credit, but a few years of making payments in full and on time will fix that.

Those three things account for the vast majority of your credit score. Everything else may as well be a rounding error, for all the difference it makes.
posted by valkyryn at 6:22 PM on January 6