When it comes to managing credit cards, we all have a preferred method. It goes without saying that to be successful in this hobby, you must pay off your balance in full before the due date, but the exact time and frequency of payments varies person to person. Some pay before the statement closes, and others wait until the last minute of the due date. So, let’s go over some of the pros and cons of each card management style.
Make Sure to Pay Your Bills On Time
Credit card payment history contributes to a huge chunk of your overall credit score, or a whopping 35 percent to be specific, so it’s important to make all payments before their due dates. And I’m not talking about making a minimum payment. Technically, sending a check for the minimum balance due will contribute to the payment history in a positive way, but you’ll end up paying interest on the remaining balance. Rewards credit cards tend to carry especially high interest rates, therefore paying just the minimum amount will negate all your rewards and is not recommended.
Pros: Not paying interest
Cons: None
Paying Off Balance Before the Statement Closes
Consumers who use this method tend to stay on the cautious side and pay off their balance before the statement closes, sometimes multiple times per month. Although you won’t owe any interest on your card, which is the goal, you also won’t accumulate positive payment history. If the statement closes at $0, you technically owe nothing and the payment is not recorded by the credit bureaus, which get their information from lenders.
If you prefer paying off as much of your bill as possible in advance, it’s best to carry a small balance that is reported to the bureaus along with a full payment shortly after a statement closes. This will help you establish payment history, keep your credit utilization low and increase your score.
Pros: Keeping credit utilization rate low
Cons: No record of payment history
Cycling Your Credit
Sometimes lenders are fearful of offering a high credit line, especially to consumers with a thin credit file. If you apply for your first or second credit card, your credit line might be on the lower side. Let’s say it is $1,000, and you need to make multiple expensive purchases. If your first purchase is $800, you are now using 80 percent of your credit limit, which implies high risk.
To appear in control of your finances, you want to keep your credit utilization rate under 30 percent if possible. So, you can pay off the $800 before the statement closes and then use your card again to make another purchase. Doing this multiple times per month is called cycling your credit. You want to use this method if your credit line is low but you are 100 percent you can pay off your purchases in full right away. Just be careful and don’t let the statement close with a large purchase on your bill. This will increase your credit utilization rate and temporarily lower your credit score.
Pros: Keeping credit utilization rate low
Cons: Risk of not paying in full before statement closes
Paying Off Balance on Due Date
Some people like to hoard their money until the last day of the grace period. You may call it procrastination, but others call it investing. If you have money in a high-yield checking account, it might make sense to keep the money there for as long as possible to accrue a higher return. Of course, this only makes sense for accounts with high balances. You also need to be careful with your utilization rates. Racking up a huge credit card bill isn’t worth a credit score drop for a few extra bucks in your checking account.
Pros: Investing money elsewhere
Cons: High credit utilization rate
Setting Up Autopay for Credit Card Bills
This option really varies person to person. With different due dates, bonus categories and annual fees on each card, it can get rather overwhelming to keep track of everything. Setting up autopay for your bills can eliminate lots of stress, especially if you hold multiple rewards credit cards, but it also can backfire.
For example, if someone makes a fraudulent charge on your credit card and you don’t notice right away, the autopay might pay for something you didn’t buy. In my opinion, it’s easier to not pay for it in the first place than to jump though hoops trying to your money back after the fact. Not to mention the possibility of not having enough money in your checking account to cover the bill. Then you have to deal with overdraft charges from your financial institution.
Pros: Easy bill managing
Cons: Potential complications with fraud
How I Manage My Credit Card Bills
Now, after all of this, you might be wondering how I manage my credit card bills. I pay off every card in full the day I receive an email letting me know my statement is available. This way I don’t miss any payments, and everything gets reported to the credit bureaus. I pay everything manually and have not set up autopay on any of my cards for the fear of overdraft charges, just in case. This way I also can choose a checking account for that specific payment.
I’m curious. How do you manage your credit card bills? Please share your methods in the comment section below.
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