Does making only the minimum payment affect your score at all?

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Does making only the minimum payment affect your score at all?

Postby t528491 » Wed Sep 26, 2012 11:12 am

I discovered that my Discover It card has a 0% APR for 15 months. I only have a balance of $150 on there, and I certainly have the money to pay it off, but I'm just wondering if there's any advantage or disadvantage to making only the minimum payment ($40). My utilization is under 5% right now, so that's obviously not an issue. I had read somewhere that carrying a small balance actually helps your credit score, but I want to get confirmation on that before I do.
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Postby Daniel » Wed Sep 26, 2012 12:19 pm

A question very similar to this was recently addressed at the link below, but I will elaborate on this a bit.

In general the only component of your credit score directly affected by the decision to keep a balance by paying the minimum payment are your credit utilization rate.

Your credit utilization rate is determined by the total amount of credit available as of your last card statement, and the total amount due on your last statement.

What that means is, regardless of your choice to pay the minimum or pay in full your utilization percentage on that card is set until your credit card company posts their next update to the bureau. One month later, your credit utilization should end up being higher than it otherwise would have been because your next month will have your standard monthly spending plus the balance left on the card last month.

In general, paying the minimum should have an additively negative effect on your score for each month you continue the practice.

I would like to note two things though. One, you have a 0% interest rate on this borrowed money and two, your credit score shouldn't matter too much if you aren't applying for credit or a job or insurance in the time period where you choose to pay only the minimum payment.

If you were to invest the cash you save in a low-risk/risk-free fixed interest instrument with the same maturity and not spend it on useless stuff, it would technically be better for you to pay the minimum and invest the rest. [start rant]The key thing here is, most people don't invest in a no/low risk instrument and instead just buy more crap and end up getting themselves into trouble. [end rant]

It is also important to remember to read the fine print regarding your intro period. In many cases if you make a late payment, you get back interest calculated at a penalty rate and in almost all cases, if the amount is not paid off in the 0 interest period you will get back interest calculated. Be careful, and make sure you are very familiar with the terms and conditions of your contract!

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