It can be tempting to pay only the minimum amount due when you receive your credit card bill each month. After all, lower payments leave more money for other expenses. However, consistently making only the minimum payment can negatively affect your credit and result in a growing balance that can be difficult to repay.
Making only the minimum payment on your credit card can impact your credit score. While it may not immediately hurt your score, consistently paying only the minimum amount due can negatively affect your credit utilisation rate and potentially lower your credit score over time.
Partial payments will help lower your balance, but you can still face late fees, growing interest and damage to your credit score.
The exact amount you pay doesn't factor into the payment history portion of your credit score. It's simply noted that you've made a payment on time. Although there's no direct connection, only paying the minimum amount due can increase your debt over time, which can put a strain on your finances.
The lower your balances, the better your score. Carefully consider how you want to use your available credit based on your goals and your personal situation. Keep in mind, however, that the best way to maintain a high credit score and lower your financial risk is to pay your balances in full and on time, every time.
"When you pay only the minimum amount due, you can avoid late payment charges, but the remaining unpaid balance starts attracting finance charges, which can go up to 42% p.a. Moreover, when there is unpaid balance in your account, all new purchases become ineligible for the interest-free period, which means they will ...
The 15/3 rule, a trending credit card repayment method, suggests paying your credit card bill in two payments—both 15 days and 3 days before your payment due date. Proponents say it helps raise credit scores more quickly, but there's no real proof. Building credit takes time and effort.
Let's say your credit card balance is ₹20,000, and your interest rate is 18% p.a. (1.5% per month). If you only pay a ₹800 minimum each month, it will take you 32 months to repay the debt. Further, you'll pay ₹5,411 in interest!
If you pay your credit card twice (or more), then it will only affect your credit score positively. It will also help us to: Avoid late fees and penalties. Build a positive payment history.
Over time, only paying the minimum balance can negatively affect your credit score as the balance you carry affects your credit utilization ratio, which accounts for about 30% of your score.
Payment history — whether you pay on time or late — is the most important factor of your credit score making up a whopping 35% of your score. That's more than any one of the other four main factors, which range from 10% to 30%.
Use the debt snowball method
In order to use this method, list all of your credit card debts from lowest balance to highest balance. Now start concentrating on wiping out the credit card with the lowest balance while still making the minimum payments on the other cards. The point of this strategy is to build momentum.
If your credit card statement balance changes, your minimum payment might change as well. That's because minimum payments are calculated based on what you owe, so they are affected by your monthly spending, interest rates and possible fees.
If you choose to pay your Outstanding Balance in full on or before the Payment Due Date, no finance charge will be imposed. However, if you choose to pay only the Minimum Payment or any amount less than the Outstanding Balance on or before the Payment Due Date, you will be treated as borrower or a “revolver”.
There are some differences around how the various data elements on a credit report factor into the score calculations. Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.
Yes, if you pay the minimum payment on your credit card statement, you could still get charged interest. By paying the minimum you keep your account in good standing but you do not avoid accruing interest. The exception to this is if you have a card with a 0% introductory APR, which usually is for a set period of time.
Longer repayment term: If you habitually keep on paying only the minimum amount due on your credit card, you will take a very long period of time to repay the entire amount. This, in turn, would turn out to be an unwanted financial burden for you.
If you pay only the minimum amount due, i.e., ₹500, your outstanding will be ₹9,500 (₹10,000 – ₹500). Interest charge will be levied on ₹9,500 which you need to pay in the next billing cycle.
The Takeaway
The 15/3 credit card payment rule is a strategy that involves making two payments each month to your credit card company. You make one payment 15 days before your statement is due and another payment three days before the due date.
The golden rule of Credit Cards is simple: pay your full balance on time, every time. This Credit Card payment rule helps you avoid interest charges, late fees, and potential damage to your credit score.
Paying only the minimum repayment amount each month means you'll usually incur interest over time. This will significantly increase your costs, and will extend the time it takes to pay off your total. Most credit cards come with an interest free period on purchases.
No, paying the minimum on your credit card does not hurt your credit score. In fact, it ensures your card remains in good standing with your issuer and avoids late fees. However, as long as you're carrying a balance, you'll continue to accrue interest.
Percentage method: Some credit card issuers calculate the minimum payment as a percentage of your outstanding balance. This percentage typically falls within the range of 1% to 3% but can vary. For example, if your outstanding balance is $500 and the minimum payment percentage is 2%, your minimum payment would be $10.
First, if you carry a balance, you'll pay interest on that amount, which can quickly get expensive. Credit card lenders generally charge an annual percentage rate (APR) ranging from 16% to 25% on purchases made with the card.