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How rewards work if you pay off your balance early

Summary

If you pay off your balance early, you’ll still get the rewards you earned for net purchases. Even better, you won’t run the risk of incurring interest.

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Dear Cashing In,

I’ve been using my Citi Costco Visa for practically everything to get the rewards. Is there any fine print on how long the balance has to stay on the card? For instance, if I buy a trip for $5,000 today, can I pay it off tomorrow and the rewards will still count? I couldn’t find any fine print on this, but want to make sure before I pay off balances early. – Suzanne

Dear Suzanne,

It is important to understand the details of how rewards are accumulated. After all, you wouldn’t want to go to the trouble of spending a bunch of money on a card only to learn that your rewards didn’t materialize.

Fortunately, just about all reward cards operate in the same way. They give you rewards based on the net purchases you make every month.

Check out all the answers from our credit card experts.

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How and when rewards are calculated

What that means is at the end of the month, your credit card issuer looks at the money you have spent on the card, minus any credits you have received for returns or refunds. The result is the net spending for the month. At that point, the card issuer credits you with the rewards accumulated for that statement period. That includes any category bonuses you might have earned for spending at certain categories of merchants.

If your rewards are in the form of airline or hotel miles, they might take a few days to show up. That’s because your card company has to report them to the airline or hotel. This timing sometimes comes into play if you are trying, for instance, to hit a certain threshold of frequent flyer miles before booking a trip. After you spend what you think should get you to that point, you have to wait for your statement to close and for your card company to report the miles. On its website, for instance, American Airlines says “transactions may take up to 2 weeks to post.” In my experience, it is usually more like three or four days.

The important part, then, is that your rewards are a) reported monthly and b) are based on your overall spending minus credits.

For rewards purposes, it usually does not matter when you pay off your balance. If you pay off your balance the next day, the next month, or the next year, the result is the same: You will earn the rewards based on the month in which the spending took place.

Paying it off in full and early is a good idea

I say it “usually” does not matter, because one card comes to mind that gives rewards based on when you pay off the balance. The Citi Double Cash card (no annual fee) gives you 1 percent back in the month you make the purchase, plus another 1 percent back when you make a payment. Getting that extra incentive to pay off your balance is helpful, just in case the threat of punitively high interest rates isn’t enough to prompt you to pay off your balance each month.

Suzanne, it is commendable that you are paying off your balance early each month. You can continue to do so with confidence that you’ll earn your rewards as you should. 

See related: How to redeem your card’s cash back reward, Credit card help: 7 ways to get the most from rewards credit cards

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Credit Card Rate Report Updated: October 9th, 2019
Business
15.22%
Airline
17.19%
Cash Back
17.27%
Reward
17.18%
Student
17.29%

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