Should I pay off small credit card purchases immediately, or focus on something else?

Whenever you have a credit card in your name, it instantly starts an internal conversation with yourself about how much and how frequently you can pay things off. Plenty of credible arguments favor paying everything off every month, and it’s likely the best way to really start building credit. 

One Redditor posting in r/personalfinance asks this question directly by inquiring if it’s better to make small purchases and pay them back instantly, or if there is another good strategy. This is a fantastic question, and it’s something all young(er) individuals should ask to build up good habits. 

This is a great question, and I’m always happy to see when people take the time to learn how to handle credit cards. 

The Question

The question here from the original poster around whether or not it’s true that getting a credit card and using it to pay transactions back asap is good for the credit score is interesting. As one might suspect, the friend is questioning what they know to be true based on what a “friend” told them about how to best manage credit cards. 

The hope is that if they can pay back their purchases quickly as it’s good for their credit history and score. This, in turn, will make you a trustworthy borrower, which helps you get a low-rate mortgage down the road and makes renting an apartment or buying a car even easier. 

If the question is whether or not a credit card is good for your future, most Reddit users will say unequivocally yes. While Dave Ramsey might say you can live without a credit card, there is no question that having a good credit score can make your financial life a whole lot easier. 

The Truth

So, what is the truth about how to handle credit card payments? Do you want to pay them instantly or in full every month? In all reality, it really doesn’t matter, but one option is arguably better than the other for sanity’s sake. 

Credit reporting companies like TransUnion and Equifax look at your debt-to-income ratio to determine your credit score. In other words, these credit agencies want to determine how much of your gross monthly income goes to your monthly debt payments. Some payments, like a mortgage or car, are weighted differently, but still count against your debt-to-income ratio. 

Creditors generally look for someone with 35% or less debt-to-income, as this percentage makes you a healthy borrower. By paying off your credit cards monthly, the creditor sees that you are keeping your debt-to-income ratio low, getting you closer to this percentage. 

It’s hard to imagine any advantage from paying off credit transactions immediately instead of paying them off, in full, every month. As long as the bill is paid in full before the due date, you are likely in the best shape to see your credit score either go up or stay the same.

In other words, your only focus needs to be on paying the card off every month, and the credit company is okay with however you want to do this.