If you are a credit card, you might be aware of how important it is to make timely payments on your credit card bills. Not only to maintain a good credit score, but it also helps you avoid all the unnecessary charges like interest, late payment fees, etc. Understanding the do’s and don’ts of a credit card is an important thing to do before you start using one as it will help you use your credit card wisely and responsibly to get the most out of it. People who use their credit cards with care generally save a lot and those who don’t keep the essential things in mind, end up being trapped in high debt. You might have heard a lot of the disadvantages of missing credit card bill payments. But, have you ever thought about whether you should pay your credit card early or not?
It is very true that making credit card bill payments by the due date is the most important thing to do in your whole credit card journey. But, what about paying your credit card bill far earlier than the due date? Does this affect your credit score in any manner? To understand the answers to all these questions, keep reading the article:
Understanding Credit Card Billing Cycle & Due Date
There are a few important terms that you should be aware of in order to use your credit card in the right manner. The following are a few of them:
Credit Card Billing Cycle: The time period between two consecutive statement generation dates is known as the billing cycle of a credit card. It generally consists of 28-30 days and varies from card issuer to card issuer. For example, if you first received your card on the 10th of May, your billing cycle will start on the same day and will end between the 8th to 10th of June. The last day of a billing cycle is known as the statement generation date as the bill of all your transactions done within the month is generated on this day.
Payment Due Date: As it is clear by its name itself, the payment due date is the date on which you need to pay your credit card bill. The payment due date is generally after 15-20 days from the last day of a billing cycle. The time period between the statement generation date and the payment due date (also known as the grace period) is given to the cardholders to pay their bills and no interest is charged on their transactions before the due date. Now, the cardholders can either pay the minimum due amount or the full outstanding amount by the payment due date as per their convenience.
Many people believe that paying only the minimum amount is enough and carrying a balance from month to month helps in building their credit score. Let us clarify that it is one o the biggest credit card myths. Paying only the minimum due amount is not enough, but you should try to pay the full outstanding each month. When you only pay the minimum due amount, you can avoid late payment charges, but interest is charged on the rest of the amount. And when you make the full bill payment on time, you can avoid late payment fees as well as interest charges.
Paying Credit Card Bill Early
Now, the question that arises is: should you pay your credit card bill early or not? The answer to the question is Yes. It is a good idea to pay your credit card bill early than to pay it after the due date. Even if you make your credit card bill payment before the statement generation date, it will be adjusted with the bill and you can avoid the hassle of worrying about the payment due date or missing payments. It is not necessary to wait for the payment due date to clear your dyes. If you have received the bill and you can afford to pay it on the same day, you should go for it. Even if you want to make the bill payment before statement generation, there is no harm in doing so.
People are generally afraid of paying bills before statement generation as they don’t know what to do if they have paid more than the total outstanding amount. If you have paid any extra amount, it doesn’t go anywhere but will be adjusted in your next bill. So, you should not worry about paying more than the total bill amount. Some people knowingly pay extra amounts with their credit card bills in order to increase their credit limit for the next month so that their credit utilization ratio doesn’t get affected even if they make a large purchase. The extra amount that you pay on your credit card is known as a negative balance and is not at all bad for you or your credit score.
For example, you have purchased something worth Rs. 30,000 in a billing cycle and you are unaware of a cashback of Rs. 1,500 that you earned on this transaction. Now, your total outstanding amount becomes Rs. 28,500 (Rs. 30,000 – Rs. 1,500), but you make a bill payment of Rs. 30,000 before the statement generation date. In this case, your credit card will have a negative balance of Rs. 1,500. Then in the next billing cycle, if you have purchased items worth Rs. 20,000 in total, this negative balance will be subtracted from your purchases as you have already paid that much amount and you will receive a bill of Rs. 18,500.
Credit Cards, if used responsibly, can be your best friends as you will keep getting lots of rewards, offers, and deals across different categories, But, in order to get the maximum benefit from your credit card, you must know what to do & what not to do with it. Delaying or missing your credit card bill payments can have a really bad effect on your credit score as well as your financial health, But, there is no harm in making your credit card payments earlier than the due date. Even if you pay an extra amount, it is adjusted in your next month’s bill. Therefore, it is always a good idea to clear your dues as soon as possible as it will only be considered a good habit.