Credit cards are beneficial tools for consumers to help build their credit up for a loan for a car or mortgage, or even to help you in an emergency and don’t have the cash to hand until payday.
However, regular use of your credit card will entail you having to make the necessary payments each month to keep your balance under control and also to avoid those extortionate late fees that not only add to your balance but also negatively impact your credit score.
One question we get asked a lot is how often you should pay your credit card a month and will make more than one payment in a month damage your credit score.
We’ll be answering these questions and more within this article.
How Frequently Should You Pay Your Credit Card?
The truth is, the number of times you make payments for your credit card each month doesn’t particularly matter as it doesn’t show up on your credit report and therefore will not affect your credit score.
So whilst many people assume that the credit bureau will look more favorably on people who may make more than one payment off their credit card a month, it doesn’t make a difference.
However, this isn’t to say that there aren’t benefits to making additional payments to your credit card on top of your monthly payment as some of the outcomes of making more than one payment do have consequences on your credit score.
For example, if you’re paying more than one payment amount then there is a far better chance that you’ll meet the minimum payment requirements so you won’t incur any late fees and therefore increase your balance.
So as you’ll be making your payments on time, then your credit score will benefit.
Another benefit of making more than one payment a month is that you’ll probably pay more than the minimum payment required and therefore your balance will decrease quicker and keep your balance lower.
This will mean you have a lower utilization rate of your credit score and will look better on your credit score.
How Does Balance Affect Your Credit Score?
Keeping your balance month low throughout the month will result in a lower utilization, which is the second most important factor for credit bureaus to work out a credit score.
Paying as much as possible of your credit card each month and keeping your balance lower will give you a better score, which is a contrast to what many people believe, as many credit card holders think paying a credit card off over a long time and carrying the balance will benefit their credit score as it shows they can reliably make repayments for a long time, however, this is incorrect.
Credit cardholders who have the highest credit scores are often ones who keep their credit balance to 10% of their credit limit on their card.
For example, if you have a credit card with a limit of $10,000 then you’ll have a better credit score if you keep your balance under $1,000 and make regular repayments rather than having a $5,000 credit balance and paying larger repayments each month.
However, we all know this sometimes isn’t possible, especially if you’re buying big pieces of furniture or even a car, which if this is the case, then you should try to make an additional repayment that month.
Why You Should Reconsider Your Repayment Schedule
If you’re currently saving or going through the stages of making a big payment on a house or a car and will require a loan in the process, then you’ll be trying to maintain or improve your credit score so you become more likely to be accepted for said loan.
What some people don’t realize is that your credit balance will be reported by your credit card company to the credit bureau once a month and typically on the same day – they don’t update the credit bureau every time you make a repayment. This date could also fall before or after your minimum payment date during the month.
This means, if you make a repayment the day after your credit card company reports to the credit bureau then it won’t show up on your credit score until the next month. So if you are going to need a specific credit score to request a loan, then you’ll want to be savvy with when and how you make your payments so they show up on your credit score.
So if your balance is creeping above 10% of your credit limit, then you may want to consider making an additional repayment that month even if it’s way before your repayment due date, so it doesn’t get sent to the credit bureau and negatively impact your credit score.
How Will Making Frequent Repayments Benefit Me Financially?
If you make weekly repayments off your credit card then you’ll be able to reduce your average balance each time and this is what credit card companies base their monthly interest fees off.
Therefore, if you make four weekly repayments throughout the month then your average balance will be lower than if you were to pay your credit balance off in full at the end of each month, meaning you’ll save some money from smaller interest fees, even if the savings are minor.
Making regular weekly repayments may keep your finances under better control than if you were to make a larger payment at the end of the month.
If you set up automatic repayments of $100 a week (variable depending on your balance) then you’ll pay $400 off your credit card without you even knowing. However, where some people go wrong is that they’ll wait till the minimum payment is due and then only be able to pay the minimum because they might have spent their money throughout the month.
Therefore the balance will carry over for longer until you manage to pay it off and you’ll incur more interest fees and therefore remain in debt for longer than you probably desire.