Should I Pay Off My Credit Card in Full?
Key takeaways
- Yes. Whenever possible, you should pay off your credit card in full each month before the due date.
- Carrying a balance from month to month will cost you money and can hurt your credit score.
- If you have to carry a balance, you can save money by asking your credit card company for lower rates or waived fees.
Pros of paying off your card
Boosts credit score
When you pay off your credit score on time every month, you’re building a strong payment history. Payment history is the most important factor in how your credit score is calculated, and is worth 35% of your FICO Score.
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Saves money
You can avoid paying interest on credit cards by paying your card off in full before the due date. This will keep more money in your wallet, as you’ll only pay off what you actually charge to your card.
Stay out of the redCan’t make heads or tails of credit card interest? Learn how your credit card interest is calculated to keep yourself out of financial hot water.
Better rates on future loans and cards
Having a strong credit history with regular on-time payments can help you qualify for lower rates when you apply for credit in the future. That means you can save on different kinds of financial products like car loans, mortgages and credit cards.
What happens when you don’t pay your card in full
When you don’t pay off your credit card in full, your credit can take a hit and you’ll end up spending more money. Here’s how paying the minimum (or not paying at all) can affect you.
Lower credit score
When you don’t pay off your credit card in full every month, your credit utilization — the amount of available credit you’re using — will go up as interest accrues on your balance. This will hurt your credit, since credit utilization is worth 30% of your FICO Score.
Expect your credit to take a bigger hit if you miss a payment or make a late payment. You could be looking at a decrease of more than 100 points.
Interest charges
If you carry a balance from month to month, you’re effectively borrowing money from your credit card company. You’ll need to pay interest on the amount you borrow.
Since the average credit card interest rate is currently 24.20% and interest generally compounds daily, this is an expensive way to borrow money.
Late fees
Whether you pay less than the minimum, make a late payment or miss a credit card payment altogether, your credit card company may charge you late fees.
Penalty rates
If you’re more than 60 days late, your card may charge you higher interest rates called penalty APRs. This’ll make your monthly payments even more expensive as you rack up interest.
Best way to pay off credit cards
Follow these credit card best practices to save as much as possible on your credit card bill:
- Pay in full. The best way to pay off your credit cards is to pay the full amount you owe before the due date every month. Do this whenever possible.
- Pay what you can. If you can’t afford to pay the full balance, pay as much as you can toward your balance to avoid as much interest as possible.
- Pay the minimum. At the very least, you should pay the minimum on your credit card each month to avoid racking up late fees and penalty rates.
If you don’t have the cash to cover your minimum credit card payments, prioritize your debts and consider working with a credit counselor to create a debt management plan.
Tips to lower your credit card bill
Get lower monthly credit card payments with these tips:
Ask for a lower APR. It might sound too good to be true, but you can call your credit card company to request a lower interest rate. According to a LendingTree study, 76% of cardholders got a lower APR when they asked for one.
Ask for waived fees. You can also ask your credit card company to remove late fees from your bill. You’re even more likely to be successful with this request, since 89% of cardholders had their late fee waived when they asked.
Consider consolidating. If you have too much high-interest credit card debt, consider consolidating your debt with a personal loan or balance transfer credit card.
Frequently asked questions
You should pay your credit card bill before the due date each month. To avoid paying interest, you should pay the full balance if at all possible. To avoid late fees and other penalties, you should make at least the minimum payment each month.
While most people make one credit card payment a month, people who follow the 15/3 rule make two payments. They pay the first half of their credit card bill 15 days before the due date, and the second half three days before.
It’s a strategy to protect your credit score by keeping your credit utilization low throughout the month, but it’s not necessary to follow these exact dates. Keeping an eye on your card and making payments when you see your utilization go above 30% every month should be enough to keep your utilization low.
It’s likely. One of the best ways to improve your credit score is to make on-time payments on all of your accounts, including credit cards and loans. But if you already have good credit, you’ll need to do more to earn a credit score above 800.
According to the 2/3/4 rule, you should apply for a maximum of two new credit cards in 30 days, three new cards in a year and four new cards in two years. Bank of America, for instance, uses this as an unwritten policy for its credit card applicants, but it’s also a good rule of thumb for how many credit cards you should get at most in a short window.