Pay Early, Get Late Fee?

Nov 4, 2014 by

shooting yourself in the footIn “Your Credit Score #1” I focused on credit utilization, one of the five pieces of the FICO® credit score. One strategy I suggested for keeping your credit utilization low was to pay off a large purchase on your card right away. That way a balance including the large purchase is less likely to be reported to the credit bureaus.


But there’s a possible glitch in this strategy: pay off your purchase early and then assume that takes care of your next minimum credit card payment and you may end up getting hit with a late payment fee!

Statement Cycles and Payment Due Dates

I’ll use my credit card statement to show how you can get hit with a late payment fee by making an early payment.

Statement Cycle and Payment Due Date

First, notice the Billing Period: January 03, 2014 through February 04, 2014. That means this statement includes all purchases, refunds, and payments made with the card during that time period.

Next, notice the Payment Due Date: February 28, 2014.

Now let’s say I’d made a $600 purchase with my Citicard on February 01, 2014. Being both overly obsessed with my credit score (not really, but let’s pretend) and an avid reader of Money Counselor, I don’t want that $600 purchase to be included in an account balance reported by Citi to the credit reporting bureaus because that would increase my credit utilization and potentially ding my credit score a bit. So on February 3rd I log in to my Citicard account and transfer a $500 payment from my checking account, bringing my balance to just $138.26.

How clever I am, I smugly think as I log out. A few days later when I get the statement above except with a $500 lower balance reflecting my February 3rd payment, I see that the minimum payment due is only $10 (it would be less than the $20 shown because of my $500 payment), and I’ve just paid $500, so I’m good until my next payment due date near the end of March. Right? WRONG!

I Get Hit With a Late Payment Fee

From Citi’s perspective, I made no payment this payment period. For my $500 payment to have counted toward the minimum payment required, I must have made the payment AFTER the end of the Billing Period—February 04, 2014 in this example—and BEFORE the Payment Due Date of February 28, 2014.

But I made my $500 payment on February 3rd—one day before the Billing Period ended.

From Citi’s perspective, I made two payments during the prior payment period, and no payments during this statement’s payment period!

When my statement arrives for the next Billing Period, I’m shocked to learn I’ve been hit with a $35 late payment fee, all because I didn’t make a measly minimum payment. Ouch!

What I Should Have Done

After I made my $600 purchase, I could have made a good guess—or called Citi and asked—when the current Billing Period ends. Then I could have waited to make my $500 payment until, in this case, February 5th: one day after the end of the Billing Period.

Or if the Billing Period end were still quite a few days away and I didn’t want my higher balance to ‘ride’ that many days (because I’m overly obsessed with my score, remember?), I could have made the $500 payment immediately after the purchase but understood I’d still need to make at least the minimum payment due when I got my next statement to avoid a late fee.

Or I could have been really clever and used cash or my debit card to make the $600 purchase, avoiding the whole bloody mess. 🙂

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