Are Multiple Credit Card Payments the Secret to Better Credit?
Whether you pay your credit card in full, make only the minimum payment, or something in between, you probably send just one payment to your credit card issuer each month. No matter how much you choose to pay, as long as you make your payment on time (and pay at least the minimum), you're doing exactly what your credit card issuer requires. But, when it comes to your credit score, it could be more beneficial to make multiple credit card payments in the same billing cycle.
It's not the number of payments you make that helps your credit score, but rather the impact on your credit card balance and, more specifically, your credit limit.
A Brief Refresher on Your Credit Card Balance and Credit Score
You may already know that a large part of your credit score is based on your credit utilization – the ratio of your credit card balance to its credit limit. The higher your balance is relative to the credit limit, the worse it is for your credit score.
Credit card balance updates are typically sent to the credit bureaus on the last day of the billing cycle, not real time. This means that if you have a $1,200 balance when your billing cycle ends, that's the balance that will be reported to the credit bureaus and included in your credit score. On a credit card with a $2,000 credit limit, your utilization would be at 60%, which is pretty high.
Multiple Credit Card Payments Can Lower Your Credit Utilization
You can control the balance that's reported to the credit bureaus by sending multiple credit card payments.
This means that more of your balance is paid off by the time your billing cycle ends, thus lowering your credit utilization and improving your credit score.
It can be especially helpful to make multiple credit card payments if you're a big spender. Or, spreading your payments between paychecks can keep your bank account more level throughout the month versus dropping a large lump sum on your credit card balance all at once.
The Best Payment Method for Multiple Credit Card Payments
Thanks to electronic payments, it's pretty easy to make multiple credit card payments. You can make a payment online or over the phone using your checking account. With either method, your payment will post to your account within a few business days. (Some credit cards linked to a checking account may post on the same day.) Mailing your extra payments works, but it will take longer for the payment to post since you have to wait for the mail to arrive to your credit card issuer.
If you decide to make multiple credit card payments, make sure you have a goal. Are you trying to keep your balance at 30% of the credit limit? Are you trying to be sure a $0 balance is reported to the credit bureaus?
Make sure you continue to stick to your budget even when you're sending more than one credit card payment, especially if you're doing this with more than one credit card. The plan could backfire if you're spending too much money trying to keep your credit card balance low.
Other Benefits of Multiple Payments
While improving your credit score might be the primary goal of making multiple credit card payments, there's another benefit. Depending on how your credit card issuer calculates your finance charge, you may save interest by sending more than one credit card payment throughout the month.
For example, with the average daily balance method, you'll pay a lower finance charge by sending a payment earlier in the billing cycle.
Reducing your balance earlier in the billing cycle frees up additional credit and gives you more freedom to spend. This is helpful if you have a low credit limit or you're planning a large purchase or you want to rack up additional rewards on your credit card. If you're trying to earn a signup bonus, for example, multiple credit card payments may be necessary so you can make enough purchases to meet the spending requirements for the bonus.
Do You Have to Make Multiple Payments to See a Difference?
You don't have to make multiple credit card payments to ensure a low balance is reported to the credit bureaus. You could use your credit card early in the month, pay off the balance, and let your credit card sit until the billing cycle closes.
Of course, this requires you to keep up with your billing cycles, which don't necessarily line up with calendar months. Making more than one payment may be much easier.
Note that your credit score is based only on the most recently reported credit card balance. Because your credit score isn't tracking your previous credit card balances, you have time to reduce your balance in the future if necessary.