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Will prepaying card bill help credit score?


Opening Credits
Columnist Erica Sandberg
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

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Question Dear Opening Credits,
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 due? -- Phillip 

Answer Dear Phillip,
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 options:

1. Pay 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 standing. 

Soon 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.

2. Pay 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.

You 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. 

3. Pay 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 near 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.

Other 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!).

But 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.

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Published: December 25, 2013

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