When should I pay off charges on credit card if my main concerns are reward points and credit score?

Question

I am starting the process of paying my bills with my Chase credit card. I do not want to carry a balance from month to month. Which option is better?

• Option A: Pay a bill on credit card. Bill goes pending on the credit card. Transfer money from savings to immediately pay bill on credit card.
• Option B: Pay bill using credit card. Wait for bill to NOT be pending. Transfer money from savings to pay bill on credit card.
• Option C: Pay bills using credit card. Wait until almost the end of the billing cycle, then do a lump sum payment of all bills for the month.

My interests are credit card points and keeping my good credit score.

Answer 1

Option D: Pay bills using credit card. Wait for billing period to close and monthly statement to be generated. Pay the statement balance in full, and pay it on or before the due date.

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For credit card reward points, simply using your card earns the points, regardless of when or how frequently you pay the card.

For credit score, actually making your payments, making them on time, and paying at least the minimum (in this case the full balance) will be beneficial. The only aspect this doesn't control for is utilization. At some point during the month (may be at the beginning, end, middle, or elsewhere in the billing cycle), the card issue will report the balance and credit line to the credit reporting agencies; it is difficult (if possible at all) to determine when this happens. As long as your utilization (amount charged to card vs. total credit line) is in the 0%-10% range (or up to 20% - exact formula for credit scores are proprietary & secret), it will not be harmful.

Additional benefits:

• Fewer and less frequent payments than paying it off every time you use it. May be easily automated via your bank or card (i.e. you may be able tell Chase to automatically debit your checking account for the full statement amount - not minimum amount due - on or before the due date). Much easier on you to manage (little to no work or mental overhead).
• Keep cash on hand. You won't really earn much (or any) interest with current rates, but this could change in the future. Additionally, if an emergency comes up where you need cash, you will have more available than if you had pre-emptively paid off your credit card (this may result in not being able to pay the card in full that month, but if it is truly an emergency, then that is likely an acceptable tradeoff to resolve the issue)

Answer 2

It only makes sense to make mid-period payments on credit cards when you need to free up available credit for a large purchase or are needing to keep utilization low due to incoming credit pulls for a loan (both to juice your credit score and to minimize debt to income ratio).

Paying your statement balance each month lets you earn some trivial interest on your funds in savings and the delay grants you flexibility should something happen that makes a less than full statement balance payment desirable.

Otherwise, all your stated options will earn you credit card points and will have no negative impact on your credit score long term. Just remember that utilization is still typically based on balances at point in time when score is pulled, but this is only relevant when you intend to put your credit score to work.

Since the interest you'll gain in a savings account is pretty trivial, if you are more comfortable with frequent payments to keep your credit card balance minimized then go for it.

Answer 3

Option C: Pay bills using credit card. Wait until almost the end of the billing cycle, then do a lump sum payment of all bills for the month.

This one. Make sure you set you credit card to "auto-pay". That makes sure it gets paid on time, maximizes the time you can hold on to your money, and you can't screw it up (which is an expensive mistake). It also simplifies things: you really just want ONE payment per month on your credit card account.

CAVEAT: this only applies to regular bills & purchases and NOT to cash advances. Do NOT use a credit card for cash advances. If you absolutely have to take a cash advance pay it off as early as possible and make sure to overpay by 5% or so. There is a nasty penalty for just paying the balance (it's complicated).

Answer 4

In my experience, credit cards in the United States usually have a somewhat generous "grace period" during which no interest is charged.

For simplicity, let's assume that your credit card's billing cycles correspond with calendar months, so that one billing cycle runs from January 1 through January 31, the next runs from February 1 through the last day of February, and so on.

The due date for all of your purchases in January will probably be something like February 25, then the due date for your purchases in February will be something like March 25, and so on. So, if a charge posts to your credit card during the month of February, you won't be charged any interest if you pay that charge off on or before March 25.

If you're concerned about accidentally missing a payment, then I would suggest making a payment once a month, shortly after the end of each billing cycle.

If you want to be even more cautious, then it would be a good idea to pay off each charge shortly after the charge appears as pending. This way, you'll be pretty certain that you're not spending money you don't have, and it's very unlikely you'll ever miss a credit card payment. The disadvantage is that this is less convenient, since you'll be making payments multiple times per month instead of just once per month.

Conversely, if you want to be less cautious, you can schedule payments on the due date instead of before. However, I can't think of any real advantages to this.

Personally, I make credit card payments at an arbitrary time after the end of the billing cycle but before the due date. It doesn't really matter.

What I described above is typical, but different credit cards will have different terms, so the above may not apply to your credit card. Make sure you know how your credit card works before you use it.

Answer 5

Remember that credit card interest is usually calculated on your average daily balance, so the longer you wait to pay, the more interest you'll pay, although if you have low-interest cards this may be a trivial amount.

To calculate this, take your card's rate and divide it by 365. Multiply that amount by your card's balance, then multiple THAT by the number of days in that month's billing cycle. The answer is the interest cost for the billing cycle if you paid down none of the balance. So, a card with a 9.9% rate and $1,000 balance in a 31 day month would be calculated as:

((.099 / 365) * 1000) * 31 = $8.41 (interest for a 31 day month on $1,000 at 9.9%)

If you aren't worried about your credit score in terms of your utilization rate (anything above 20% has an increasing, although short-term, effect on your score), then you have to ask yourself whether the "rewards" you receive for carrying the balance outstrip the cost in real terms (additional interest, although again this could be rather inconsequential for a small balance and/or low interest rate) or indirect terms (lowering the available credit you have in the event of an unforeseen expense where using a card makes sense to you).

Beyond that, all of your options are pretty much the same (as noted in one comment).

Answer 6

Here's my take ~

Keeping the balance-to-credit ratio low, paying in full and on time is a better way to get the most from your card. At the end of the day, you should strive to use credit cards to your advantage, and paying your bill in full is the best way to do that.

Keeping tiny balances on your account directly affects your credit utilization rate. The higher your credit balance, the higher your utilization rate, which can in turn hurt your credit score.