Will prepaying card bill help credit score?
Dear Opening Credits,
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
Ask a question.
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I just recently got my first
credit card. My question is, can I make a payment ahead of time? If so, will it affect my credit in the same way as making a payment when it's actually
Good work on getting your first credit
card! You now have the ability to charge goods and services, pay over time, and
develop a credit history that makes you look really amazing to your current issuer
as well as future lenders.
Once you start charging, you'll be
getting monthly bills from your credit card company. Here are three payment
after you get your statement. You have about a
month to use your credit card to buy things, and then you'll get a bill in the
mail. This is your statement and it will detail what you spent your money on
and where, how much you owe in total, and the minimum payment amount that you can send to keep the account in good
after the issuer receives your payment, it will notify the three major credit
reporting bureaus (TransUnion, Experian, and Equifax) of your activity. Your credit scores will be updated with that
data. When you make your payments is the most important factor in building a
strong credit score, so as long as you send at least the minimum by the due date
on the statement, you're fine.
before your statement is issued. There's
no reason to strum your fingers until the statement is sent to you (either by
snail mail or electronically). If you have the
money and want to prepay, great! Pick up the phone or visit your issuer's
website (or your own bank's bill pay system) and post a payment. As long as the
transaction goes through before the due date, you're good.
won't get extra points on your credit score for being an early bird, though. The issuer
sends data about accounts to the credit bureaus on their schedule, not yours.
Still, it's not a bad habit to get into. In fact, it's a wonderful one.
after each charge you make. Another option
is the pay-as-you-charge method. Each time you swipe your credit card,
immediately delete the debt. Again, like any advance payment, your credit
scores won't experience a special benefit, but you will avoid any interest
charges that get tacked on to a balance that you extend to the following month.
Another benefit of advance
payments is they ensure that you never charge more than you can
repay in full. Plus, you'll be keeping your credit utilization ratio
zero, which is the second weightiest scoring factor. Credit utilization is the
amount you owe in relation to the amount you can borrow. Owing less than 30
percent of your card's total credit limit is recommended for scoring purposes,
but zero is ideal for overall financial health. Keeping constant track of all
charges and then paying them off right away is a guaranteed win-win.
factors that affect your FICO scores are length of credit (the longer you've
successfully managed credit the better), the types of different loans you've
managed (such as credit cards, student loans or a car loan or mortgage) and
applications for new loans and credit lines (go easy on them!).
remember, as long as you're getting your payments in on time and in full, no
matter how you do so, you'll excel at this real life card game.
See related: FICO's 5 factors: The components of a FICO credit score, How to use the grace period to avoid paying interest
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: December 25, 2013
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