Does Paying a Bill Earlier Establish Better Credit?

It's a good idea to pay those bills early.

It's a good idea to pay those bills early.

The best time to pay any bill is as soon as you can. The only really effective way to use credit cards, for instance, is to pay them in full every month so there is never any interest. Other bills, such as a 90-day no interest bills for a piece of furniture, also should be paid promptly. About 65 percent of your credit score is amounts owed and payment history. Paying early or on time will improve both elements. Paying early won't directly improve your credit scores, but it sure won't hurt them, says the Experian credit bureau.

Give Yourself a Cushion

It's always a good idea to pay your bills early just to give yourself a cushion and avoid getting hit with any late fees, which will damage your credit score. You can't depend on the mail or even the Internet to get your payment delivered or posted promptly. Even some online payments sometimes take a day or two to post to your account.

Pay Early to Cut Interest

It is a good idea to pay your bills early, and help your credit score, when you carry a balance. Credit card companies figure interest on the average daily balance. Most allow you about 25 days between the end of the billing cycle and the due date. If you pay immediately, your payment will be credited and lower your average daily balance for the next month's interest. Over time this will cut your interest charges and help you pay off the balance, which can boost your credit score.

Play the Reporting Game

There is another way you can help your score by paying credit card charges early. Credit card companies report your debt to rating agencies monthly, based on the last bill. Say you charge $400. If you pay $300 to that card before the next billing cycle, your bill will be reported as $100, not $400. If you then pay that $100 before the due date, your balance will be reported as zero.

It Will Help Store Credit

Paying a credit card bill early may not boost your credit standing, but paying early on a store charge or bill with a local merchant will certainly improve your standing. A store that gave you 90 days to pay off a new chair won't hesitate to extend you credit the next time you want to buy something if you paid that bill in 60 days.


About the Author

Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.

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