What is the minimum amount due on credit card?
It is the minimum amount that you are required to pay on or before the payment due date to maintain your card account. It is only a small portion of the principal outstanding every month. Typically, the minimum amount due is calculated as 5% of your outstanding balance. Paying the only minimum amount due every month on your credit card can severely affect your credit score.
Consequences of paying the only minimum amount due every month-
If you pay the minimum on your credit cards each month, here’s what you can expect to happen besides getting a dip in your credit score-
- Paying down your debt will take much longer and become too expensive
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The debt you hold will start multiplying and it will become more difficult to repay
How Making Minimum Payments Can Affect Your Credit Score?
The way a customer uses his/her credit card can significantly affect their credit score. Paying your credit card bills on time and maintaining a low balance on your credit card is important as it directly impacts your credit score. However, lenders can get a good amount of information by merely keeping an eye on how you make your payments towards credit card bills. If you are consistent in paying your monthly credit card bills, it shows that you are managing your credit card debt responsibly and thus increasing your creditworthiness in the eyes of the lender.
Every credit card issuer sends reports to credit bureaus regarding the amount of money you monthly in the form of your credit card bills. Regardless of how much is paid, the data will be displayed on your credit report. If you pay your bills in full and on time, your credit score will not get hampered. However, the data regarding payment on your credit report will indicate a shift in the finances that increase your liability towards the lender. If you miss any payment or experience an increase in credit utilisation rate, your credit score will begin to suffer.
Report from Issuers
The revolving accounts and latest credit report of a customer contain important information such as credit rating, amount due, past due, the amount paid and balance. The credit rating and balance are the most important factors of a customer’s credit score as they contribute towards their repayment history and credit utilisation rate that is how much of the credit limit has been used out of available credit limit. The details about the amount due and the amount paid will indicate that the customer has paid their whole balance within the stipulated time frame. However, the number of issuers who report the data currently stands at only 70% of the total.
What happens when a customer makes minimum payments?
It is very important to pay your credit card bills in full and on time to maintain a good credit score. Even if you can afford to make the minimum payment in any given month, it is essential to do so consistently so that your credit rating does not get affected. On the other hand, if any customer who makes minimum payments but somehow misses out and continue to repeat the same thing, again and again, will have to deal with a decrease in their credit score. Problems with credit scores may also occur if a customer is in the habit of paying only minimum payments and at the same time, spends and increases his credit card balances. In this case, the credit utilisation rate is affected, which further affects your credit score. That's why it is advisable to all customers to maintain their credit utilisation rate always below 30%. Basically, what matters the most is paying the amount in full every month with the consistency.
Can you just keep paying the minimum amount due every month?
Yes, you can keep your credit card active by paying just the Minimum Amount Due every month. But you will have to pay high-interest charges and, there will be no interest-free credit period. Just remember that the less you pay off the outstanding amount, you will end up paying more on interest. Credit card debts are very expensive, and you must always make credit card payments in full and on time. When there’s a financial contingency or cash flow crisis in a month, in that case only you can choose to pay the minimum amount due. This way you will be able to save your credit score from getting hampered. But this option is good only for a short time.
To pay your credit card bills in full and on time, you will have to be very disciplined while making the payments and for that, you will have to cut down on your unnecessary expenses and revisit your budget if you constantly find yourself being able to pay only the Minimum Due amount.
