Paying off as soon as I spend? Right or wrong?

Zoom7000

I've always followed Martin's advice to always pay off any credit card balances IN FULL at the end of the month once the statement is received. However, with things getting more and more expensive and cash flow becoming an ever increasing concern, I've actually been paying off my balance the day I use the card. Is this a good or bad thing to do?

For religious reasons, I do not deal in interest, hence why I ensure the bill is always paid IN FULL and I will never carry a balance past the month.

However, is it okay, from a credit rating perspective, to pay off the balance, at the end of the day, or even moments after I have used the card? Sometimes, my statement at the end of the month will show resulting in a zero balance because I've paid it off daily, even though I may have spent hundread or even over a thousand, over the course of the month.

Is the right thing to do? Is it wrong? Or does it not matter at all? 

Ebe_Scrooge

It won't hurt, as such.  But paying off immediately, it appears (on your credit file) as though you're not using the card (as you say, the statement at the end of the month shows zero), so you lose the benefit of building up a good credit history.  So, to be pedantic, it's bad from a "credit rating perspective".

northwalesd

What some people do is have a second (or third or fourth...) bank account and transfer the money for their credit card purchases into that account as soon as they've used the CC. That way they know they have the funds 'ringfenced' to pay the CC bill at payment date. It doesn't have to be a current account, could be a savings account, but you could have a current account with a DD to pay the CC bill in full.

Zoom7000

I'm in the fortunate position that I don't struggle to pay the bill (long may that continue!) it's more a case of I just want to get it out of the way. If I have the cash, I'd rather pay it off immediately, than have to just wait for the end of the month to pay it off.

Ebe_Scrooge mentioned was the case in terms of affecting the credit rating. Hence why I asked the question.

Pretty sure I've heard Martin say, credit scores are fickle things. They definitely are!

maisie_cat

It's not a bad thing to do, with interest rates being so low you're not saving anything much by keeping the money somewhere else until the due date.
I've twice made extra payments recently, having put very large items on the card for S75 protection.

MEM62

Zoom7000 said:

However, with things getting more and more expensive and cash flow becoming an ever increasing concern, I've actually been paying off my balance the day I use the card. Is this a good or bad thing to do? 

If cashflow is tight I would expect you to be making use of the full interest-free period - not paying as you spend.  Pay after the statement date but before the due date and you will be fine. 

Ergates

Zoom7000 said:

I've always followed Martin's advice to always pay off any credit card balances IN FULL at the end of the month once the statement is received. However, with things getting more and more expensive and cash flow becoming an ever increasing concern, I've actually been paying off my balance the day I use the card. Is this a good or bad thing to do?

For religious reasons, I do not deal in interest, hence why I ensure the bill is always paid IN FULL and I will never carry a balance past the month.

However, is it okay, from a credit rating perspective, to pay off the balance, at the end of the day, or even moments after I have used the card? Sometimes, my statement at the end of the month will show resulting in a zero balance because I've paid it off daily, even though I may have spent hundread or even over a thousand, over the course of the month.

Is the right thing to do? Is it wrong? Or does it not matter at all? 

One potential "risk" is that if there is a delay in the transaction posting to your card account, you could pay off the amount before it's actually debited, making your account go into credit.  Some card providers don't like that.

Ebe_Scrooge

Zoom7000 said:

I'm in the fortunate position that I don't struggle to pay the bill (long may that continue!) it's more a case of I just want to get it out of the way. If I have the cash, I'd rather pay it off immediately, than have to just wait for the end of the month to pay it off.

Ebe_Scrooge mentioned was the case in terms of affecting the credit rating. Hence why I asked the question.

Pretty sure I've heard Martin say, credit scores are fickle things. They definitely are!

OK, a couple of points to hopefully clarify.

First, the credit score you see on your CRA report is utterly meaningless, ignore it.  The underlying data, however, are important.

If you're aiming to improve your credit history, then you need to be using your card for everyday purchases then pay in full at the end of every month.  If you're not bothered about your history (call it "credit-worthiness" if you like, if that makes more sense), then paying your card off early is no big deal.

However, if you're doing that, and you don't need to make use of the interest-free period, why not just use a debit card?  OK, for larger purchases it makes eminent sense to use a credit card, because you'll get S75 protection.  But if you're talking about the weekly food shop, a tank of petrol, a sandwich & a coffee, then just use a debit card.

Hope this helps.

paul_c123

There are different interpretations of Sharia Banking but if you drew a Venn diagram of it and credit cards, there is a small sliver of intersection where a credit card is appropriate to use and not forbidden.

In that small section, it goes without saying:
1) You must remain fully up-to-date and on top of the T&Cs surrounding any offers for 0% interest long term, to be sure you can comply in the future and not slip into paying interest.
2) You must also be thoroughly familiar with the "up to 56 days" grace period enjoyed if you pay the statement balance in full, by the payment due date. This includes knowing what counts as a payment or not (eg, does your credit card include merchant refunds and adjustments as a payment?) and having a reliable way of paying on time. DD for the full amount makes a lot of sense.
3) A "credit file" from the point of view of Sharia Banking is an interesting concept. Because a good proportion of credit in the UK is interest bearing, that element is basically irrelevant however the credit file and its information is still important to maintain so you are able to continue to benefit from 0% financing offered by a credit card and elsewhere.

A credit card offers other benefits over a debit card - namely, S.75 protection, slightly different rules on dispute and fraud protection; and of course the benefit of paying by card instead of carrying cash (or cheques etc), aceptance online, contactless functionality, easier management etc.

Sandtree

I know there are takaful mortgages, insurance etc in the UK, is no one offering takaful credit cards such that "interest" isnt an issue?

The only issue you may run into is that some cards have a limit to the number of inwards payments you can make (each one costs them ultimately) and so you may find you hit the limit.

alewin

If the OP is serious about not paying interest because of religious reasons, then surely having a credit card itself should not be allowed.

You should not even agree to the terms, as you are agreeing to pay interest if you are unable to pay or are late with payments. Also you are borrowing money, with interest applied from day one. This is waived if the balance is cleared by the due date.