A credit card is a form of loan where you make purchases with the card on credit with an agreement to pay back what you owe before a deadline. If you own a credit card, you’ll agree that paying one’s balance can be hard. There are usually a lot of fear, uncertainty, and questions that come with settling one balance before the due date. One of such questions, which is quite common, is regarding how many times a cardholder should pay his credit card a month.
Typically, a cardholder is expected to make a full payment once a month to settle his balance. However, a credit cardholder can decide to make multiple payments towards his balance instead, provided he pay what he owes in full.
I understand that figuring out how and when to pay your credit card balance can be challenging. For this reason, I shed some light on how many times you should pay your credit card a month. Should you make a single complete payment? Or spread it? Read on to find out!
What Risk Does the Credit Card Company Have?
How Many Times Can I Pay My Credit Card a Month?
Before I enlighten you on the crux of this article, it makes sense that we understand what a credit card is, how it works, and what it consists of.
Let’s begin with what a credit card is.
What Is a Credit Card?
A credit card is a rectangular card issued to customers that is used to make purchases, with the agreement that the cardholder will end up repaying the card issuer for the cost of the item bought, including any agreed-upon fees and interest, should they be assessed. Basically, a credit card acts as a typical loan that allows you to make purchases now and repay them (with interest) later.
How Do Credit Cards Work?
When you are approved for a credit card, the bank offers you a credit limit (the maximum amount you can borrow) to be used judiciously. Your credit limit will depend on such factors as your income, your other debts, and how much available credit you have on other cards.
Payment networks such as Visa, MasterCard, Discover, and American Express, process credit card transactions. They ensure that the merchant receives the money for the purchase and that the correct cardholder gets billed.
When your bill comes, you can decide to pay a certain minimum amount, paying the entire balance completely, or paying some amount in between. Paying just the minimum each month is ultimately the most costly option, as it will cost you the most interest. Paying your bill completely remains the best option. When you pay your bill completely each month, you get a grace period that allows you to avoid paying interest on purchases at all.
Your credit card issuer or company reports your payments to the credit bureaus, who are sort of like the FBI’s when it comes to credit cards. Your payment history counts for 35% of your credit score, a three-digit number that shows how risky it would be to lend you money. You must pay at least the minimum by the due date each month to avoid late fees and potential damage to your credit score.
What Makes up a Credit Card?
Credit cards have a lot of components, and each one should be understood by cardholders:
Issuer Logo: the issuing bank logo is usually on the front of the credit card. While the issuing bank (Bank of America or Wells Fargo, for instance) provides cardholders, the credit card payment network (like Visa MasterCard) processes card payments.
Europay, MasterCard, and Visa (EMV) Chip: The EMV chip, which has become common globally in the last decade, stores card data on a computer chip in an encrypted way, making it difficult for scammers to steal the card number.
Magnetic Strip: Credit cards also come with magnetic strips, which are readable through some specific machines used for monetary transactions, and also contain account information.
Your Name and Account Number: Your name as it appears on your credit card application appears on the front or back of the card, as well as your account number.
Credit Card Expiration Date: Your card expiration date shows merchants the month and year when your card will expire.
Customer service number: The card issuer provides a customer service number on the back of the credit card to solve issues and provide information on credit card usage and options.
Signature Box: Credit cards come with a field where cardholders can sign their name.
When Is the Best Time to Pay Credit Card to Avoid Interest
Types of Credit Cards:
There are several types of credit cards that are available for use. But, we will stick to the five most commonly used types.
Regular credit cards are the simplest type of credit card. They don’t have any benefits and rewards. They are suitable for parents who want to provide their children with the convenience of using a card.
One benefit of regular credit cards is that they have a predetermined credit limit, allowing the user to control their card use. Once the purchase has reached the limit, no further purchase can be initiated, and they’ll need to repay what they owe to open up the card once more.
- Balance transfer credit cards
This type of card is an option offered to those who have a balance on existing cards. The debt is settled with the new card, and the owner pays the debt to the new card at a reduced interest rate.
- Student credit cards
A student credit card is made for people who need a credit card but lack a credit history. It requires a higher approval rating compared to normal or regular cards.
- Charge cards
Charge cards are beneficial as they do not charge interest or fees because the balance needs to be settled in full at the end of each month. But, in the event of a failed transaction, charges are made, or the card may be revoked, depending on the terms and conditions set by the card company.
- Subprime credit cards
Subprime credit cards are considered to be among the worst and most scheming type of cards, as it’s meant for people with a bad credit history. Its fees are high, but individuals still use the cards due to the lack of choice and opportunities to open a card line elsewhere.
Even if there are already federal laws regulating the fees subprime credit cards can charge, they seem to find ways and loopholes that let them continue their scheme.
How Often Should You Pay Off Your Credit Card in a Month?
Credit cards are valuable tools for building credit since keeping your credit utilization low and settling your bill early will positively affect your credit score. But to get the most benefits from your cards, ensure that you charge only an amount that you can afford to settle by your due date every month. This will make it less likely that your balance will increase to the point that is overwhelming, possibly keeping you in a cycle of making only the minimum payment and accumulating interest. If making a larger payment each month doesn’t work well with your budget, it makes sense to pay down your balance regularly.
Making smaller weekly payments, or even two or three payments monthly spreads out the effect on your checking account balance. You won’t have to be anxious about a huge withdrawal exiting your account once a month, potentially around the time when you also need to pay rent and other bills.
In addition, consistently reducing your credit card balance throughout the month means any interest that accumulates on a smaller balance, limiting the gross interest you are charged. (if you settle your balance completely every month as planned, though you’ll escape paying any interest at all.)
Lastly, making multiple payments consistently reduces your credit utilization ratio, which measures the amount of available credit you are using at any particular time. Experts advise that cardholders keep utilization below 30%, and the lower, the better. Making an additional payment before your statement closing date means the credit card issuer will report a lower balance to the credit bureaus, which could be great for your credit score.
What Does Closing Date Mean on a Credit Card?
What Happens if You Don’t Pay Your Credit Card Bill?
Repercussions for missed credit card payments can differ depending on the card issuer. However, generally, if you don’t pay your credit card bill, you can expect that your credit scores will fall, you’ll incur charges like late fees and a higher penalty interest rate, and your account may be shut.
And the longer it takes for you to settle that bill, the worse the effects may be. That is why it is crucial to keep up with credit card payments. Of course, emergencies and unpredicted crises occur, which can leave you without adequate money to meet your credit card’s minimum payment. If that happens, it’s important to understand the consequences so that you can reduce the effect as much as possible. Here is what to note.
Possible Consequences:
- Lower credit scores
Payment history is a primary factor in your credit scores. So a late or missed payment can send those scores falling, and the effect will only grow the later that you pay.
If it drags down your scores far enough, it will impede your ability to qualify for competitive rates on a mortgage, a car loan, and new credit cards in the future. Normally, though, a missed payment won’t end up on your credit report for a minimum of 30 days after the payment due date that you missed. If you make the payment before that point, you might attract penalty fees, but your credit won’t take a hit.
Note that even if you make a partial payment, it will be reported as late if it doesn’t meet the minimum payment needed. Some lenders and creditors don’t report late payments until they are 60 days past due.
- Late fees and a higher interest rate
Depending on your terms and conditions, you may have to pay a late fee when you miss a credit card payment. The first late fee can begin at $29 and increase to $40 for subsequent violations made in the space of six billing cycles.
You may also be charged a penalty annual percentage rate, or APR, meaning a higher interest rate (sometimes close to 30%) is applied over a period of time after you miss payments by at least 60 days. Terms vary by the credit card issuer. Some issuers don’t charge late fees or penalty APR.
- An account in collections
If 180 days go by and you fail to pay your credit card’s minimum payment, the credit card issuer can charge off the account.
What does this mean?
It basically means that the creditor closes your account to potential purchases and writes your debt off as a loss. Mind you; you are still liable for the amount owed.
If your credit card issuer sells your debt to a third-party debt collector during this time, you’ll have to pay that company and not your issuer. As soon as your debt is in these hands, your credit will likely fall. A credit card account in collections generally stays on your credit report for seven years after it becomes delinquent.
Debt collectors may try to recover the money via several tactics. For instance, they could threaten to take your belongings, although it is not that easy or likely. Regardless, you should pay what you owe before you are taken to court, where your wages can be garnished.
