Does Paying During a Grace Period Affect the Credit Score?

Using a credit card and paying quickly helps establish good credit history.

Using a credit card and paying quickly helps establish good credit history.

Paying your credit card balances during a grace period does have positive effects on your credit score, though the benefits are indirect. Typical credit rating criteria do not include grace period payments, but making them minimizes your credit usage and helps you avoid late payment fees and delinquency issues.

Grace Period Basics

A grace period is a length of time outlined in your credit card terms during which you accrue no interest if you pay for your purchases. Some cards have no grace period while others commonly range from 20 to 30 days. By offering grace periods, creditors are able to entice more reluctant borrowers to use their cards. Their logic is that regular card use leads to merchant transaction fees and eventually causes you to carry a balance and pay finance fees.

Credit Card Scores

Your personal credit score is reported by three major reporting bureaus: Equifax, Experian and TransUnion. While each score is slightly different, all three bureaus use a modified version of the FICO scoring system, developed by the Fair Isaac Corporation. FICO includes a number of detailed scoring criteria which contribute to five major categories of your score: Payment history, amounts owed, length of credit history, new credit and types of credit used. Each has a different level of influence on the score, with payment history and amounts owed the most impacting at 35 and 30 percent respectively.

Credit Utilization

Paying during your grace period means you do not carry an ongoing balance and your interest fees are minimized. Credit utilization compares your used credit to your available credit. A low balance, or zero balance, gives you a low credit utilization ratio. Your used amount is a very small percentage of your credit card limit. Since credit utilization factors fall under the 30 percent "amounts owed" FICO variable, paying off your balances quickly and keeping a low credit utilization is one of the best things you can do to positively impact your score.

Payment History

Making grace period payments also affects several factors in the 35 percent "payment history" variable. Timely payments are a preventative measure to avoid late payments, collections, judgments and bankruptcy. Each delinquent payment experience negatively affects your score. As your delinquency becomes more severe, the adverse effects increase. Disciplined and timely payments during your grace period contribute to positive scoring in this critical FICO category.

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