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Will Making More Than the Minimum Payment on My Credit Card Impact My Credit Score?

Written by Equifax Reporter on April 5, 2016 in Credit  |   11 comments

If you carry a balance on your credit card, you may wonder how your payments affect your credit score. Does paying only the minimum credit card payment negatively impact it? Does paying more positively affect it? The answer usually depends on your particular situation, but…

PayingTheMinimumIf you carry a balance on your credit card, you may wonder how your payments affect your credit score. Does paying only the minimum credit card payment negatively impact it? Does paying more positively affect it? The answer usually depends on your particular situation, but the benefits of understanding the relationship between your payments and your credit score are huge.

Even if you are confident that you understand how your credit card payments may impact your credit score, you may not be taking the right steps to maximize the benefits of your payments. Here is what may happen when you pay more than the minimum and how additional payments may impact your credit score.

Benefits to your finances

The most obvious result of paying more than the minimum is that you’re making faster progress at reducing your credit card balance. Any amount paid above the minimum may lower the amount you owe in principal and future interest.

This creates a virtuous cycle where you pay less in interest because you are, overall, making fewer total payments, just as you would pay more in interest if your payments stretched over a longer period of time by paying only the minimum. Of course, this also depends on not making additional purchases with your card, which may add to the balance you are trying to pay down.

Ultimately, this process may help you save money that you can then use for other purposes, such as creating an emergency fund or investing for retirement. You might not realize immediate benefits from paying more than your minimum, but over the long term, you may be able to see many improvements to your finances.

Impacts to your credit score

Your credit utilization ratio refers to the amount of available credit you are using and the amounts owed. It typically accounts for 30 to 35 percent of your credit score. So if you have a $10,000 limit on your credit card but carry a balance of $9,000, your ratio is 90 percent, which is considered high. Paying down that balance and maintaining a lower utilization ratio may show lenders that you might be a more responsible borrower.

If you only use about 30 percent of your credit each month, paying off the entire balance on time shows that you are capable of handling your accounts more responsibly. This may also give you opportunities for lower interest rates on new lines of credit, meaning less interest accrual in the future.

Effects of paying just the minimum

If you pay only the minimum amount due each month, you may be paying more interest than principal, depending on your interest rate. This draws out the length of time over which you are paying back the overall balance, which may result in even more accruing interest. Instead of paying your card off in a few months, sending in just the minimum might draw out your payments for years.

Your budget is likely to benefit from doing the math and staying informed about how making additional payments can save you extra interest as well as lower your credit utilization ratio.

Related Articles:
Why Your Credit Mix Matters
How Your Credit Limit Is Decided—And Why It Matters
Should I or Shouldn’t I: When to Tap Your Emergency Fund

 

The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.


11 comments

  1. JKathleen says:

    I use my CC for most regular purchases – food, gas, etc. I use up most of my credit limit each month and pay it down completely each month. So, it looks like I am carrying a 70 – 90% balance, when in fact I am not carrying a balance at all. Do the score calculators access and use my payment information or do they look only at the percentage of credit used without any understanding that I am paying off the balance each month?

    • Twill says:

      It all depends on what your credit card balance is on the day that your creditor reports it to the credit bureaus. In most cases, your balance is usually reported 3 days after your due date. So for example, if your payment is due on the 3rd, and you pay your credit card balance in full, (but still continue to charge expenses) whatever your balance is on the 6th (the 3rd day after your payment, which is the day the creditor reports your balances) will be reported to the credit bureaus. I actually do the same thing as you…..use about 80% of my limit, then pay the balance down each month. However, after making my payment, I wait three days to use the card again, so that the low balance will be reflected on my credit report.

  2. Agnes says:

    Equifax..To Whom it may concern. I am 91 yr. old female. Yesterday I requested a “one time” annual credit report from Equifax etc. I completed the questions – gave credit card # etc,- Is it supposed to come in the mail?
    I, foolishly gave out my personal information as requested. I am really upset. I cannot speak to a live person on phone.

  3. Sylvestre says:

    Hi,
    I currently have about 5 department store and 2 major credit cards. Out of the 7, 2 of them have no charges on them and the rest have about 25% credit usage. When the cards are being reported every month with no usage will that negatively affect my score.

    • Tom B says:

      The credit bureaus post total utilization, which is the percentage of total credit used vs. total credit available. a zero balance on one or more cards will lower your overall credit utilization, which is beneficial to your score. While each account has balance listings for current, high, and average (over lifespan), most lenders aren’t going to examine each unless they’re considering a major loan (i.e. mortgage).

      The downside of not using a card is that the issuer of the unused card is unlikely to increase your credit line. Increased credit lines means more total credit available, which lowers your credit utilization, provided that your balances don’t also go up propottionately.

  4. Michelle says:

    I have a 0% interest payment on a store credit card, to which I have the “minimum” taken out of my checking account on the due date automatically. There’s not much point in paying it down sooner, is there? Especially when I have a card that I use that is charging interest and any additional funds available would go to pay a higher amount on that. It’s not going to save me any money in the long run as long as there’s no late fees. At least that’s the way I understand it. Right or wrong?

  5. Wendy C says:

    I paid off the At&t collection from RPM on my Equifax account and it should show a zero dollar balance. It doesn’t and says it is still open.Equifax please check into this material and clear it up. I no longer owe this it is paid in full.

  6. Malex says:

    Hello,

    how can i launch a credit report depute… i was sick and fell back on my payment. when i recovered it was close to three months. immediately paid the past due amount and also set up automatic payment in excess of my monthly payment. I trying to get help by clearing the negative report on my credit.

    if this cannot be done… how long does it take for my credit to get back to normal, initially i was at 706 points and now i drop to 605

  7. Mazetta says:

    Removing the items off of my credit report that it should not be on my credit I have 35 inquiries should not be on my report could you please take them off other items on there shouldn’t be on there thank you very much.


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