Understanding Your Credit Utilisation Ratio
Before diving into the two-payment strategy, it’s crucial to understand a key factor in your credit score: the credit utilisation ratio (CUR). This is the percentage of your available credit that you are currently using. For example, if you have a total
credit limit of ₹1,00,000 across all your cards and a combined outstanding balance of ₹40,000, your CUR is 40%. Lenders see a high CUR as a sign of financial stress, which can lower your credit score. Most experts recommend keeping this ratio below 30% to maintain a healthy score.
How Card Issuers Report Your Balance
Your credit score isn't updated in real-time with every purchase. Instead, card issuers report your balance to credit bureaus like CIBIL periodically. Following recent RBI guidelines, this reporting now happens more frequently, often weekly or multiple times a month. This means the balance on your card at the time of reporting is what gets logged. A single large payment at the end of the month might arrive after your issuer has already reported a high balance, negatively impacting your utilisation ratio for that cycle.
The Two-Payment Strategy Explained
The strategy is simple: instead of one large payment before your due date, you make two smaller payments. The first payment is made a few days before your statement generation date. This significantly lowers the balance that your card issuer reports to the credit bureaus. The second payment is made before the final due date to clear the remaining statement balance. This ensures you avoid late fees and interest on the full amount, while presenting a much lower utilisation ratio to the credit bureaus. This discipline of making multiple payments is what truly makes the difference.
Elevating Your Credit Score Quickly
By making a payment just before your statement closes, you artificially lower the balance that gets reported. This leads to a lower credit utilisation ratio, which is a major component of your credit score. Because Indian lenders now report data more frequently—as often as weekly—the positive effects of this lower utilisation can show up in your credit report much faster than before. While the number of payments itself doesn't boost your score, the resulting lower reported balance does. Consistently keeping your reported balance low signals to lenders that you are a responsible borrower.
Cutting Your Interest Costs
If you carry a balance on your credit card, this strategy can also save you money on interest. Most credit card issuers use the Average Daily Balance (ADB) method to calculate interest charges. This method considers your balance for each day of the billing cycle. By making a payment mid-cycle, you lower your balance for the remaining days of that period. This, in turn, reduces your average daily balance, and consequently, the total interest you’re charged for that month. Over time, these savings can add up significantly.
How to Put This Method into Practice
First, identify your statement closing date for each credit card. You can find this on your monthly statement. Set a calendar reminder to make your first payment about three to four days before this date. Aim to pay off a significant portion of your current balance. Then, set a second reminder to pay the remaining statement balance before the actual payment due date. You can automate these payments through your bank's app to ensure you never miss them. Aligning these payments with your paydays can also be an effective budgeting strategy.
