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The rules of travel rewards can be scary and intimidating with all of the loopholes and gotchas. When you are using a credit card that offers airline miles or hotel points, you want to make sure that you actually receive the rewards you’ve earned from using the card. One of the fears people have is whether you still get points if you pay credit card early. Let’s discuss this situation further.
How travel rewards credit cards work
Travel credit cards are one of the most powerful ways you can earn airline miles and hotel points. These travel rewards are generally earned in one of three ways:
- Bonus points when you first open the card and meet the minimum spend within a specific timeframe (usually 90 days from opening).
- From the regular use of the credit card to pay bills or purchase goods and services.
- When you hit spending thresholds which trigger one-time bonuses.
There are other one-off situations where you can earn travel rewards with your credit card, but these three generate the vast majority of airline miles and hotel points earned.
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Do you still get points if you pay off your credit card early?
The short answer is yes.
Earning airline miles and hotel points are not based on when you pay your bill. Whether you pay the bill off in full before the statement closes (like I do) or pay the minimum payment required on the due date, you will receive all of the rewards you earned based on your spending.
If you don’t pay off your card each month, the interest you pay is not worth the rewards you earn. Interest rates continue to rise and can easily be 15% to 30% (or higher) annually. Yikes!
Why should you pay your credit card early?
One of the simple tricks I use to boost my credit score is to pay off my balance early. Instead of waiting for the statement to close and paying the credit card off on the due date, I pay off my credit card BEFORE the statement closes.
This does two things for me:
- Lowers my utilization
- Lowers my monthly debt service
Utilization Ratio
The utilization ratio is a huge factor in credit scores. It makes up 30% of your credit score. It is the ratio between your balance vs. credit limit on your credit cards and lines of credit… and the lower, the better!
For example, if you have a $2500 balance on a $5000 limit credit card, you have 50% utilization. Many credit guides recommend keeping utilization below 30%. And optimally it would be under 10%.
When you pay off a credit card before the statement closes, your utilization will be 0%. How awesome is that?
Monthly Debt Service
Monthly debt service (or debt-to-income ratio) is something that underwriters look at when reviewing loan applications. It is the total amount of minimum payments you must make to stay current on all of your loans, credit cards, and lines of credit.
Typically, credit card companies will have a minimum payment due of 2% to 3% of your statement balance. And this amount generally won’t go lower than $25.
When you pay off your credit card in full before the statement closes, since there is no balance, there is no minimum payment due. Therefore, your debt service will be that much lower.
The Bald Thoughts
If you pay off your credit card early, you will not lose your airline miles or hotel points. If you are carrying debt, please quit focusing on travel rewards and make every effort to pay it off as soon as possible. You can use free software from Empower to help track your bank accounts, credit cards, and investments. If you pay off your credit cards in full each month, congratulations! I’m proud of you!!!
As long as you are making your payments on time, don’t worry about your travel rewards. When you pay off credit cards early, you will still earn your airline miles and hotel points.
Thinking of getting a new credit card?
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This article originally appeared on BaldThoughts.com on April 6, 2018.
