It is advisable for you to make your credit card payment before the due date to maintain a good credit score, avoid interest, and late payment fees. But when exactly is the right time to pay? Should you pay off after every purchase? Read this article to find out.
It’s easy to get overwhelmed when it comes to paying your credit card bills. Unlike utilities or a gym subscription, credit card bills are a little more complicated as it involves different dates and billing methods.
With that said, do you pay on your statement date? On your due date? Does it even matter if you pay your minimum at any point in time? Is your credit card interest fee the only thing that will affect you?
While the general rule of thumb is to pay early and in full, let’s dive into three other times you can pay your credit card bill and the benefit you can gain from them.
When is the best time to pay your credit card bill?
1. Pay before your statement date
Great for: Taking care of your credit score
If you’ve been following us for a while, you’ll probably know that your credit card utilisation will affect your credit score. A general rule of thumb is to keep your debt utilisation ratio lower than 30% in order to have a healthy score. (E.g. if your combined credit limit is RM10,000, you should have a debt utilisation of no more than RM3,000.)
The thing is, credit reporting agencies don’t actually take into account your daily spending - only the total number that is reported on your statement date.
Let’s say your statement date is on the 15th of every month. In that month, you have your partner’s birthday so you end up spending here and there, growing your current credit card bill to RM9,000. As such, it would be a good idea to pay off your credit card bill - if not in full, then at least a substantial chunk - before the 15th.
Let’s say you’re able to pay off RM7,000, leaving a balance of only RM2,000 in your credit card. By doing so, your bank will only report RM2,000 as your statement balance to credit reporting agencies, and you will only be recognised for having a low debt utilisation.
If you clear your credit card bill a few days after the statement date, and even if you’re a solid repayer, your credit score will still dip if you allow that huge chunk of money to be reported in your credit card statement.
Now, we're not saying that you should do this all the time. Ultimately, it’s good practice to keep your credit utilization below 30%.
2. Pay before your due date
Great for: Avoiding being charged a late fee
As with every bill that comes your way, there’s always a due date for you to pay your owing.
The time between your statement date and the due date is essentially a grace period where you will not be penalized for not taking any action.
(P/S: Credit card payment due date vs closing date - these are two different dates. Your due date is typically around 20 days after your statement date, whereas your closing date is the same as your statement date.)
From what we understand, credit card late fees in Malaysia are usually RM10 or 1% of the total balance, whichever is higher (but to a maximum of RM100).
While you can technically pay your minimum balance to avoid getting charged a late fee, remember that leaving a balance in your account will eventually result in an interest charge. Credit card interest rates are notoriously high, starting at 15% per annum. To make things worse, this interest rate will only grow higher (up to 18%) if you keep growing your debt over time.
3. Pay early in your billing cycle
Great for: Just generally being a good borrower
This is essentially a healthy practice for you to avoid or reduce the finance charges to your card.
Some banks use your Average Daily Balance to calculate the total interest you have to pay at the end of your cycle. As such, your interest will be compounded over time, and in a blink of an eye, you may have accumulated a large sum of debt.
To avoid this or to reduce the impact of such compounded interest, you can always try to pay your bill much earlier in your cycle (provided you don’t make any other purchases during the billing cycle). This reduces your principal, therefore also reducing the interest you will eventually have to pay at the end of your cycle.
It’s always a good idea to pay early, and in full
At the end of the day, we all want to avoid having to pay extra charges. We all want a good credit score and to have healthy finances.
The best way is always to put into practice some of the oldest - but valuable - advices that we’ve been constantly told:
1. Always pay your bills on time, and in full
Money problems start when you delay your payment. Pay for things either immediately or within the statement cycle, or you could face high charge interests which will be carried forward into your next statement, and the next statement, and the next statement…
In fact, it would be a good idea to pay off your credit card bill after every purchase! It will take some discipline, but having this repayment habit is totally worth it.
2. Avoid buying things you can’t afford
If you’re using your credit card because you have no other means to afford buying something you want, that’s a sign that you’re probably using it the wrong way. If you can’t pay off your owing, you will end up accumulating your debt - even, and especially if, you only pay the monthly minimum.
3. Always check your credit card statement
Whenever your statement comes, check each line to ensure that there are no discrepancies. If you’ve been charged for something you did not authorise, get in touch with your bank immediately to see how you can rectify the situation.
If you’ve been charged a late fee, trace your payments to see how this happened. Did your previous payment not go through? If so, find out why and try paying your bills a little earlier to avoid any delays with payment.
Read also: 10 ingenious money tips from Malaysian dads