Breaking your credit card payment before the due date isn’t better than paying it once
UAE debt experts dispel if ‘15/3’ credit card payment hack can help improve your credit
Dubai: It helps you to use your credit card regularly and pay your bill on time as when payments are made within the billing cycle, you can use the credit you are given to your advantage, at virtually no cost. There are even better ways to make use of your credit card billing, but not all such credit hacks work.
“Those who pay their balances in full and on time are perpetually receiving a free loan from their banks. This is the smartest way to use your credit cards, but you can even take this to the next level,” said Dubai-based consumer credit analyst Rupesh Naish.
“For instance, any charge made the day before your statement closes will be due 20-25 days later. But if you charge the same the day after your statement closes, then you have another extra 30 days to pay it without incurring interest, meaning a bigger interest-free period! This is a hack that works.”
What is the 15/3 credit card payment hack?
While hacks like the above works, there have been talks surrounding a type of credit card payment hack known as ‘15/3’, which is said to help improve your credit score quicker. Let’s look at whether it lives up to its expectations, while considering its flaws and assumptions.
“The 15/3 hack suggests that if you’ve got bad credit, making more than one payment a month before the due date can result in visible improvement to your credit score,” explained Rajesh Markara, an Abu Dhabi-based debt advisor.
“It assumes you can impress by making more than one on-time payment a month, increasing the amount of on-time payments banks report to the credit bureaus. However, banks only report one on-time payment a month. So, making multiple instalments won’t help your payment history.”
Even if you paid the balance of your card three days before you due date, any charges you made to the card between your last balance will be added to your balance up until the statement closing date. These charges will become your current balance and thus your next current bill.
Why the 15/3 credit hack doesn’t work?
“While making an early payment ahead of your credit card due date can positively affect your credit, making multiple payments that amount to the same doesn’t boost your credit any further,” added Naish.
“However, you may build a positive credit history by lowering your ‘credit utilisation’ if you pay your current balance or make additional payments after your pay on your due date before the statement closing date.”
Credit utilisation measures the amount of your debt as a percentage of your available credit on a revolving debt account, such as a credit card. Experts advise keeping your credit utilisation rate under 30 per cent as a step toward maintaining good credit.
What other credit card payment hack works?
If you’re in credit card debt and tempted to wait until the due date of your next bill to finish paying off the previous month’s balance, what this means is that for every day you might have had the money to pay even part of that bill, it will still be on record as you owing the full balance.
Instead, if you paid off your balance halfway through the billing period, the average daily balance for that period would drop by half. Any amount paid down at any time during the period can reduce the daily average balance, i.e. the total daily balance divided by the number of days in the month.
If you have a Dh1,000 balance, and paid off Dh500 at the end of the billing cycle, daily balance would then be Dh1,000 till the end of the billing cycle. Now, if you were to pay off Dh500 in the middle of the billing cycle, balance will be Dh1,000 only for half of the billing cycle, and then around Dh500.
Bottom line?
If you paid off your balance halfway through the billing period, you would pay less in interest over the course of a month. Depending on the balance and interest rate, the savings could be significant. This is how you can time your payments in a billing cycle and use them to your advantage.
While that’s a hack that works, the 15/3 credit hack isn’t a shortcut to a good credit score or lower interest rates. “The 15/3 credit may help you stay current or pay your balance in full, but it would be easier to make a payment when you get paid, instead of calculating days,” added Markara.
Moreover, most credit card companies allow cardholders to adjust the dates of their billing period so the due date for bills could be made to fall immediately after that day your salary is credited. This can lead to potential savings.
if you’re among the many credit cardholders who pay their bills in full to avoid interest, the ‘grace period’ can be a major advantage. For example, if you make a purchase just after your credit card bill is generated, you can enjoy up to 45 interest-free days, and sometimes more.