Why You Should Pay From Your Credit Card Balance Weekly
Paying by credit card on time to avoid late fees and interest is easy. But you can also improve your credit score and lower your interest expenses by paying your credit card bill even earlier, perhaps weekly, since your daily balance affects how they are calculated. Here’s what to consider when deciding whether a weekly card payout might be the right move for you.
Why paying early can save money
Credit scoring models like FICO and VantageScore give you a higher score if you only use a small fraction of the available credit. This measurement of how much credit you are using, known as credit utilization , is 30% of your overall credit rating. Generally, the closer you are to 1% of total used credit, the better for your credit rating (0% may indicate dormant, underutilized credit, so using 1% credit is considered ideal ).
However, there is a catch: the due date on your credit card only tells you that the billing cycle has ended , and not necessarily when your current balance is reported to the credit bureau. As an example, suppose you paid off the balance of $ 3,100 on a $ 10,000 capped credit card on the 30th of the month, but your card reports credit usage on the 15th: you will be deprived credit utilization by 31%, even if technically you pay your bill on time. On the other hand, if you pay by credit card on a weekly basis, the utilization rate will always be relatively low.
Paying early also lowers interest
Paying early can also help you lower interest if you have an outstanding balance each month, since the interest you charge for each billing cycle is based on your average daily balance.
For example, for a card that carries 15% interest, a one-time payment of $ 500 versus $ 1,000 balance paid on the last day of your billing cycle would give you an average daily balance of $ 983, which is $ 12.29 in monthly interest. However, if you paid off the balance in the middle of a billing cycle, the average daily balance would be $ 750, which would end up costing you $ 9.38 in interest.
Three dollars is not much, but it’s a monthly fee that you don’t need to pay if you can afford more frequent payments through the billing cycle. Plus, if you’re struggling to pay off your debt, every dollar counts.