Does Paying Your Credit Card Bill Before the Statement Raise Your Credit Score?

Q: Does paying your credit card bill before the statement raise your credit score?

A: Paying your bill before the current month’s statement is issued can help your credit score. Why? It has to do with how your credit score is calculated. 30% of your credit score depends on how much debt you carry. At the close of your statement each month, your lender will cut you a bill, and report the amount that you charged for the month to the credit bureaus. Since you have only just been issued a bill, and have not yet had time to pay it, the amount you charged for the month is considered unpaid debt where your credit score is concerned.

If you keep track of how much you charge, and pay your bill before an official statement is issued, then your credit card company will report that you have no outstanding debt when the regular statement date rolls around.

Important Considerations:

The above is an ideal situation. It doesn’t always work that way. Before you start paying your bill before a statement is issued, let’s take a look at some special considerations:

1) Your credit card does not report to all (or any) of the credit bureaus – There are three credit bureaus. Whether or not your lender reports to them is up to the lender alone. There is no legislation that says lenders must report payments, amounts, or anything else to the credit bureaus. Each lender chooses how they will report, and which bureaus they will report to. Occasionally lenders will only report negative information or late payments, rather than positive information. The only way to find out is to check your own credit reports. You can do that for free at AnnualCreditReport.com.

2) You have a credit card with no-preset spending limit. Credit cards with no pre-set spending limit (like American Express cards) generally report as maxed out each month no matter how much you charge on them. That can definitely affect your credit score, and in a situation like that this tactic is going to help your score overall. Generally though, if your credit score is high enough that you carry cards with no pre-set limit, then you may not need to worry about how it is reporting. It’s only 30% of your score. Clearly you are doing something right with the other 70% or you would not have the card to begin with.

 3) Your credit card company reports what you charged, not what you owe – It’s not a perfect system, and much of this depends on your lender’s policies. If you really want to capitalize on this opportunity, I would suggest calling your credit card company and asking what they report each month. Alternately, you could monitor your credit for a few months and see what each of your lenders is reporting to the credit bureaus.

We had a reader ask us a similar question about paying your bill prior to the statement date:

Which is better for my credit score; paying off my balance before the end of the month (meaning I get a bill with a zero balance), or paying off my balance each month after I receive the bill (and all the months charges are posted).

NOTE: I’m on a special student card that gives me 0% ARP for balances under $250 with a $750 limit, so staying under $250 keeps me under 30%. What I’m saying is I pay the same amount whether I pay before the bill or after, so I just want to know which is best for my building my score.

In our opinion, it is usually best to get a bill with zero balance. However, given the other factors involved, you should check on your lender’s reporting policy. There may be no difference in what they report to the credit bureaus each month, or it may matter greatly. You won’t know until you check with your lender, and then follow up by checking your credit reports.