Buzz
Even if you pay off your credit card balance each month, there's a little-known strategy that can boost your credit score—by making payments before your balance is reported to the credit bureaus. Many people think this is based on the payment due date, but it actually hinges on the closing date. Failing to differentiate between the two can negatively affect your credit score. Here's why the closing date is so important.
Payment due date vs. closing date
As a credit card holder, you're probably most familiar with the payment due date, which is when you need to pay off a portion of your credit card debt (typically 1-3% of the total balance, including interest and fees) during a 29-31 day billing cycle, after a 21-25 day grace period. This due date remains fixed each month, making it crucial to remember, as missing it can result in late fees or higher interest rates.
While the payment due date is important, it's not the day your financial situation is reported to the credit bureaus (Equifax, Experian, and TransUnion). Instead, that responsibility falls on the closing date, which is the final day of your current billing cycle. On this day, your debt balance is actually reported to the credit bureaus.
For example, let’s say your payment due date falls on the 10th of the month and your closing date is the 14th. Knowing your payment due date is the 10th, you might decide to pay off your full balance on a card with a $1,500 credit limit because you have the available funds. However, if you then spend $500 on the card the next day, that $500 would be counted as part of your total debt reported to the credit bureaus unless you pay it off before the 14th. This is because you're still within the current billing cycle, and the payment due date reflects the previous billing cycle plus the grace period.
Why is carrying debt on your closing date problematic? Well, 30% of your credit score is based on how much of your credit limit you're not using, also known as your credit utilization. The less credit you use, the better it is for your score, indicating you're a responsible borrower. On the other hand, using over 30% of your available credit can hurt your score. (In the example above, the $500 balance on a $1,500 credit limit reported on the closing date would push your credit utilization above 30%).
Aside from credit utilization, the timing of your purchases around the closing date can help you save money. For instance, if you hold off on a large purchase until just after the closing date, it will be included in the next billing cycle, giving you more time to pay off the balance before the interest starts accumulating.
How to figure out your closing date
Your upcoming closing date likely won’t appear on your credit card billing statement, and since billing cycles can differ between cards, pinpointing the exact closing date can be a bit tricky.
The most reliable option is to call your lender and ask for past closing dates, which will give you an idea of when to make payments and avoid carrying a negative balance. For instance, my lender's closing dates usually fall on the 14th, except for one month it was on the 15th. That’s all I need to know; I just avoid making big purchases mid-month.
For a more precise estimate, you can determine the upcoming closing date by adding the length of your billing cycle to the closing date of your previous account statement, according to The Balance.
Final Thoughts
While most borrowers make minimum payments on the due date to avoid fees and interest, understanding your closing date can help you improve your credit score or give you extra time to pay off larger purchases without incurring interest.
