Learning how to pay a credit card bill sounds simpler than it is. There are a lot of factors to keep in mind, especially if you’re trying to optimize your credit score.
Keep reading for a deep dive on why paying your bill on time matters, the differences between due dates, statement closing dates and grace periods, and how autopay can be used as a safety net.
- Paying your credit card bills on time is one of the best things you can do for your credit score.
- Avoid interest each month by paying your statement balance in full.
- Making only the minimum payment will keep your account current, but it may hurt your credit utilization ratio over time.
- If you can’t pay your bill on time, contact the card issuer as soon as possible to discuss your options.
Why Paying On Time Matters
Payment history accounts for 35% of your FICO® credit score, so it’s important to pay your bills on time. While late payments aren’t reported until 30 days after they were due, they can accumulate fees and penalties right away. Plus, if you pay later than 30 days, the negative mark on your credit report can stay there for up to 7 years.
You also need to consider why paying on time really matters to lenders. Future lenders like to see that you’re a reliable and responsible borrower. If you fail to make your payments on time, that suggests the opposite. Making your payments on time shows that you’re trustworthy and less of a credit risk.
Whether you’re building, repairing or protecting your credit score, how (and when) you pay your bills is the most important factor to a lender.
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Ways To Pay
Most lenders are living in the modern digital age, which means borrowers have multiple options for how they want to pay.
Online
Whether it’s through the card issuer’s website or mobile app, you can typically pay within a matter of moments through your computer or mobile device. Once logged in, you can choose to make a one-time payment or schedule automatic payments.
Autopay Through The Card Issuer
Autopay is a smart move to keep your credit score on track. When you sign up for autopay, you guarantee that you won’t miss any payments. Autopay doesn’t just have to be the minimum. You can also select a fixed amount each month or the full statement balance. If needed, you can always cancel the automatic payment.
Bill Pay Through Your Bank
You can pay bills directly through your checking account by enrolling in your financial institution’s bill pay. Banks typically mail checks or pay electronically. The difference between bill pay and autopay is that the bill pay transaction goes through a different portal.
By Phone
Most lenders still allow you to call and make a payment. With this route, you call, share your payment information and the payment is processed during the call. Just be careful that you’re not unnecessarily paying any convenience fees to pay by phone. Also ask for a confirmation number so you have proof of payment.
By Mail
While this is the slowest method, paying by mail with a check or money order is still an option. The most important thing to keep in mind when paying by mail is putting your bill in the mail early enough so it’s not late.
In Person
Some banks or credit unions allow payments at brick-and-mortar locations. If you prefer a face-to-face approach to paying your credit card bills, this may be an option, but check with your issuer first.
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Key Credit Card Bill Terms To Know
Credit card companies use a lot of jargon, which can be confusing. Here are some basic credit card terms you should know as you read your credit card statements:
- Due date: Your due date is the deadline you have to make a credit card payment. At the very least, you need to make the minimum payment to keep your account current. If the payment is not received by the due date, it will result in a late payment and there may be late fees.
The late payment will also likely be reported to the credit bureaus, which in turn can cause a drop in your credit score. Most credit card companies report balances after the statement closing date and not after the due date. This could affect your amounts owed and your overall credit score.
- Statement closing date: This is not the same as your due date. It’s when the billing cycle ended; the monthly statement is created with transactions you made during that period. Your credit utilization ratio is generated from your statement balance – not the amount you pay on the due date.
- Minimum payment: This is the smallest amount you can pay by the due date to keep your account current. Interest will accrue on any unpaid balance.
- Grace period: This term refers to the time between your statement closing date and your due date. If you pay your statement balance between the end of your billing cycle and your due date, you will avoid paying interest.
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Three Monthly Payment Options: Minimum Payment Vs. Statement Balance Vs. Full Current Balance
Here are three different amounts you can pay on your credit card each month to stay current.
Minimum Payment
A minimum payment is the least amount you can pay to keep your account current. Any remaining balance you have on your card will continue to accrue interest. Your credit card probably has a compounding daily periodic rate (DPR) as opposed to a simple APR. If this is the case, paying off your statement balance as soon as possible may save you a lot of money in interest.
Let’s say you have a $3,000 balance after your minimum payment, and your annual interest rate is 24%. To calculate the daily rate, first divide the interest rate by 365, the number of days in a year:
0.24/ 365 = 0.0658% DPR, or daily periodic rate
Then multiply the daily rate by the balance:
$3,000 x 0.0658% = $1.97, or roughly $1.97 accrued each day*
So for a month, multiply the daily balance by the number of days:
$1.97 x 30 = about $59 of interest in one month
If your minimum payment is $90, that means only one-third of your payment would go toward the principal balance.
*Keep in mind this is a simplified calculation. Most credit cards compound the interest, so on Day 1 the interest is applied to $3,000. On Day 2, the interest is applied to the principal balance plus the first day’s interest, $3,001.97. On Day 3, the interest is applied to the new balance of $3,003.93, and so on.
Statement Balance
Paying off your statement balance will help you avoid paying interest on any items you purchased during the billing cycle as long as you do so on or before the due date.
Full Current Balance
How do you pay off a credit card? Look at your full current balance. Paying your full current balance is roughly the same as paying your statement balance, but it also includes paying for any new purchases you made after the statement closed.
Autopay Options For Your Credit Card
Autopay can prevent mistakes, and you can set up autopay to make the minimum payment, statement balance or full statement balance each billing cycle. The minimum amount will not prevent you from paying interest, but it may prevent an overdraft if you’re worried about your bank account balance.
Consider setting up a minimum payment but then paying more when you’re able to. This way, your account always stays current, you’ll continue to pay off your card’s principal, and you’ll keep your credit utilization ratio as low as possible.
Make Your Payments Earlier To Lower What’s Reported To The Credit Bureaus
Your amounts owed (the amount of debt reported to the three major credit bureaus) are affected by your statement balance, accounting for 30% of your credit score. You can change what is reported by making payments before the statements are generated. If you’re trying to improve or maintain your credit score, see when your statement closing date is each month and make a payment before that date.
What To Do If You Miss A Payment
If you fall behind on a payment, make it as soon as possible. Don’t wait more than 30 days, though. After 30 days, your missed payment can be reported to the credit bureaus, which lowers your credit score. If it was a simple clerical error, contact the bureaus and ask them to remove the late payment from your report.
To prevent future missed payments, consider signing up for autopay for the minimum amount due each month.
What To Do If You Can’t Make The Minimum Payment
Many credit card companies have hardship programs for customers who are struggling due to a job loss or medical emergency. If you know you’re going to struggle financially for a while, contact your credit card company as soon as possible to discuss repayment options. Be proactive instead of waiting until late payments do serious damage to your credit.
FAQ
The Bottom Line: Pay Your Credit Card Bills Strategically To Improve Your Score
Learning how to pay your credit card bill involves more than just knowing its due date. Figure out your card’s statement closing date and grace period. Pay twice a month to keep your utilization low, monitor for errors and sign up for autopay. Taking all of these proactive steps can help improve your credit score and potentially qualify you for additional financial products in the future.
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Lauren Ward
Lauren Ward is a writer with over a decade of experience covering financial topics for businesses and publications. Her work has also been featured in major publications such as U.S. News and World Report, CNN, Business Insider, The New York Post and Bankrate. Her expertise includes real estate, mortgages, small business, insurance and more.
