Many of us are familiar with the concept of credit scores. However, not everyone knows that making multiple card payments during a month can help to raise our credit score. It is because paying off multiple cards each month shows lenders, such as credit card companies and banks, that you are good at managing your finances and can handle more debt responsibly. In this article, learn more about improving your credit score.
What Impacts My Credit Scores the Most?
Several key factors influence credit scores: payment history, total debt, credit history duration, and the variety of credit accounts held. Additionally, owing too much money or having high balances on revolving accounts such as a credit card can also negatively impact the score.
Maintaining different type of accounts judiciously open over extended periods can contribute positively to your overall credit score. This demonstrates to lenders your ability to responsibly manage multiple credit lines over time. Furthermore, cultivating long-term relationships with creditors also has a favorable impact on your credit score, signaling your commitment to responsible financial management over an extended duration.
Credit Cards and its Impact on Your Credit Score
Credit cards can have a significant impact on your credit score. The most important factor is your payment history. Making all your credit card payments on time and in full will help you build a good payment history, which will boost your credit score. The length of your credit history is another important factor. The longer your credit history, the better. It shows lenders you have been responsible for credit for a long time.
The number of credit inquiries can also affect your credit score. When you apply for a new credit card, the lender will do a hard inquiry on your credit report. Hard inquiries can temporarily lower your credit score. However, the impact of hard inquiries is usually small and only lasts a few months.
Are Multiple Payments to Your Credit Card Essential?
Making multiple payments throughout the month helps ensure you don’t miss any due dates or incur late fees for missed payments, which can lower your credit score significantly. Paying off smaller amounts over time rather than one large payment at the end of the billing cycle will also demonstrate consistent repayment behaviour, which is beneficial for raising the credit score as well. Making multiple payments is not essential but rather beneficial for positively affecting your credit score.
It is important to note that while making regular monthly card payments may help raise our credit score, it will not immediately impact it. Credit agencies only update your credit report once a month, so you will not see the impact of multiple payments until the next time the credit report is updated.
Lower Credit Utilisation Ratio
A high credit utilisation ratio (CUR) could also negatively impact the credit score, even if you make timely monthly repayments on all accounts every single time, without fail! A CUR is the percentage of available credit you are using. It is calculated by dividing the amount of credit we are currently using by the total amount of credit you have available, and it's usually expressed as a percentage. The lower the credit utilisation ratio, the better it is for credit score. So, it is important to focus and take steps to lower it if necessary.
Maintaining a CUR below 30% (Reference 1) is generally recommended for maintaining a good credit score. For example, if you have three credit cards with a total credit limit of ₹ 2,00,000 and you currently have ₹ 60,000 as the combined outstanding balance on those credit cards, then credit utilisation ratio would be: ₹ 60,000 / ₹ 2,00,000 x 100 = 30%.
How Many Times Can I Pay My Credit Card in a Month?
Make at Least the Minimum Payment on Each Card by the Due Date
We can pay the dues on the credit cards as many times as we want in a month, but making multiple card payments every month is a good way to increase credit score. Also, you have to make sure at least the minimum payments for each card are paid by their due date. Not doing so will affect the CUR negatively. Additionally, it can result in incurring a higher interest rate as well as penalties on any remaining balance carried over to the subsequent billing cycle.
Make Payments as Early as Possible in the Billing Cycle
If you want to give more time for CUR to decrease before credit report is updated in the next billing cycle, then making multiple payments as early as possible in the preceding month is highly recommended. In any case, making the card payment by the due date is highly recommended, as missing even one payment can affect the credit score negatively.
Avoid Closing Active Credit Cards Even if They Have Zero Outstanding Balance
Some might consider closing a few of their credit cards instead of making multiple monthly payments. It would be a mistake because closing active credit cards can reduce total credit limit, shorten the credit history and negatively affect your credit score.
For example, let us say you have ₹ 3,00,000 in available credit on three credit cards in total, with a credit limit of ₹ 1,00,000 on each. You owe ₹ 60,000 on one of the cards and negligible amounts on the other two cards. The credit utilisation ratio is currently around 20%, which is a good CUR. you decided to pay off the negligible amounts of those two cards and then close them. It would lower the total available credit to ₹ 1,00,000. The credit utilization rate has now spiked to 60% and this will have an adverse impact on the credit score.
Consider Opening New Credit Accounts if it is Affordable
If you can afford it and are diligent at making regular payments, then opening new credit accounts can be a good thing and improve the credit utilisation ratio! Just remember to keep outstanding balances as low as possible, if not completely zero. For those credit accounts with nil outstanding balances, it is highly recommended to keep them open even if there is no intention of using them, as it will give a larger total available credit.
Avoid Overspending on Purchases
Another important thing is you should avoid overspending on purchases via credit cards just so you can then make multiple payments to clear the outstanding dues in the next billing cycle. Spending on a product or service through credit cards should only be done when you can afford it.
Set Up Autopay for the Minimum Amount for Each Card
It is advisable to set up autopay for the minimum amount for each card to make multiple card payments convenient every month. It will ensure you will not miss any payments due in the monthly billing cycle. Though autopay is recommended, if you manually make a few more payments in a month, you can improve your credit score and avoid any late payment fees or higher interest charges on the balance due.
Conclusion:
Making several card payments during a month or a single billing cycle can indeed improve one’s overall financial standing and ultimately increase their credit score, provided all other related aspects like those mentioned above are managed properly.
FAQs:
1. How often should I pay my credit card to increase my credit score?
You have the flexibility to make credit card payments at your convenience throughout the month. Making multiple payments on your cards can have a positive impact on your credit score by reducing your credit utilization ratio (CUR), which represents the portion of your available credit currently in use. A lower CUR is advantageous for your credit score. Additionally, it is advisable to make these multiple card payments as early as possible within the billing cycle. Doing so allows these payments more time to be recorded in your credit report, ultimately contributing to an improved CUR.
2. What is the 15 / 3 rule?
The "15/3 rule" is a strategy aimed at accelerating the improvement of your credit score through two monthly payments to your credit card issuer. To apply this rule, initiate the first payment, which should be at least half of the total balance, 15 days before the minimum payment due date. Then, settle the remaining balance, including any recent charges, 3 days before the due date. By following this approach, you can effectively reduce your overall credit utilization ratio by the end of the billing cycle, specifically on the statement date. This proactive management can contribute to an increase in your credit score over time.
3. How high can your credit score go up in a month?
The monthly increase in your credit score depends on factors like your current score, specific credit factors, and the actions you take. Typically, positive changes can raise your score by 10 to 20 points, but substantial efforts, like paying off a significant debt or correcting inaccuracies, could lead to a 50 to 100 points increase in a month.
4. What happens if you pay your credit card twice?
If you pay your credit card twice (or more), then it will only affect your credit score positively. It will also help us to:
- Avoid late fees and penalties
- Build a positive payment history
- Increase the credit score
- Qualify for better interest rates on loans and credit cards
Key Highlights:
- Multiple card payments can help improve credit scores by lowering the credit utilisation ratio.
- The ideal credit utilisation ratio for a good credit score is 30% or less.
- Avoid closing active credit cards, even if they have zero outstanding balances.
Set up automatic payments for the minimum amount due on each card to avoid late fees or missing any payments.
