Living with credit

Why paying on your credit card due date may be a mistake

Mike Cetera

I’m a creature driven by one thing: deadlines. Call it an occupational hazard.

It’s been a hugely important character trait to possess when it comes to my own finances. I always pay my bills on time because I instinctively have the due date circled in red on my mental calendar.

Whenever I can, I pay online, and I generally set up payment on the same day I receive the bill.  But I also almost always authorize an electronic funds transfer from my bank account to occur on the bill’s due date.

This is where I made a nearly costly mistake.

In January, I woke up to an email from my bank telling me my Chase credit card payment could not be processed because the amount I had authorized “was not available in the Pay From account you selected when scheduling the payment.”


A sloppy mistake becomes potentially costly

I had mistakenly set up the payment to draw from a joint checking account (with very little balance) I share with my wife instead of my personal checking account. Had I not seen this email, I would have been on the hook for a $35 late fee (I would have asked to have it waived) and a few bucks in interest.

I saw the email in time – and I had a few hours’ cushion to respond. Chase even has changed its payment policy, allowing you to make a payment penalty free until 11:59 p.m. Eastern on your due date. If you pay after 8 p.m., the issuer says you’ll see a late fee on your account, which will be removed once the payment posts in one to two business days.

Even so, I’ll abandon my habit of paying bills on the due date just to be safe. After all, I could have just as easily have missed the email had I not been working.

Why you should pay your bills early

It turns out, though, experts also tend to think my wait-till-the-deadline strategy stinks.

“I recommend you pay off your credit cards well ahead of their scheduled due date,” says Chris Simchuk, assistant vice president for retail lending at Numerica Credit Union based in Spokane Valley, Washington.

This credit union quite explicitly advocates for this.

Here are a few of the best reasons to pay early, according to Numerica:

It reduces the interest you’re charged.
If you carry a balance from month to month, you could save yourself a bit of cash if you pay your bill early. That’s because your interest is calculated based on your average daily balance. Pay early and you reduce the average daily balance, Simchuk says.

It could help your credit score.
Paying early could reduce your utilization ratio. That’s one of the factors that determines your credit score. If your institution reports your balance to the credit bureaus at the beginning of the month, pay before then to reflect a lower balance, Simchuk says.

Paying early can help you reduce your debt faster.
If you carry a balance, you can dig yourself out of debt sooner – a bit, granted – by paying before the due date. This goes back to reducing that average daily balance.

“We call it personal commitment,” Simchuk says. “Anytime someone wants to get out of a debt cycle, they have to have their own personal commitment to themselves that they want to accomplish the goal of paying off that debt.”

See related: Multiple monthly credit card payments can boost your credit score, 5 ways to avoid (or deal with) late fees

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  • John Ham

    My credit card bills are due on the 3rd and 7th. I always pay my statement balance on the 15th (I am paid semi monthly) and optionally on the 30th for my 2nd paycheck. Never a question of missing a payment

    • (Replying for Mike) Hi, John! You’re doing all the right things. Keep it up. I learned my lesson last month and won’t ever wait until the last minute.

    • jeff

      (Replying for Mike) Hi, John! You’re doing all the right things. Keep it up. I learned my lesson last month and won’t ever wait until the last minute.

  • William

    I have a credit card I pay online on the due date. However I recently noticed, the last four months I have received late fees. apparently my credit card due date and late payment dates are the same, and they don’t credit my payments for 13 days.