How much will minimum payments hurt my credit score?

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How much will minimum payments hurt my credit score?

Postby siskas » Thu Sep 19, 2013 11:10 pm

I'm currently a student with zero credit and limited credit knowledge. My laptop broke, and I'm in desperate need of a new one.

I somehow got approved for $1700 of credit through Apple's financing program with 0% interest for 18 months.

I plan on using $1300 of that to purchase a macbook. Right now I can only make the minimum payments but that will increase greatly by December and I plan on paying it off by the end of May at the latest.

I have an internship starting in April that pays very well but I can't wait that long to buy the laptop. My question is, how will this affect my credit?

I know using up that amount of credit and only making minimum payments isn't good because ill have a large balance, but will it balance out or even benefit my credit score since I'm increasing the payments soon and paying it off very early? Should I even be worried about it since it will for sure be paid off within 8 months versus the 18?

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Postby SClay » Fri Sep 20, 2013 2:34 pm

Hey there!

It's going to temporarily hurt your credit score due to utilization. $1300 on a $1700 credit line is about ~76% utilization. You never want your utilization to be over 30%, otherwise it starts to hurt your credit score. BUT, while your utilization will be high when you first purchase and start paying it off, It will eventually go down as you pay assuming you don't charge any other Apple product to the card. So in the long run, this is going to help your credit score and by the time you pay it off your credit profile should be on it's way to a great future!

The only way minimum payments affect your credit profile is through utilization.

Hope this helps! :)
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Postby thom02099 » Sat Sep 21, 2013 9:54 am

+1 to what SClay said. Also keep in mind that your score is really only important if you're applying for new/more credit. In your circumstance as you describe, it would not appear that you plan to apply for more credit prior to paying off the balance by May 2014. Yes, you'll take a bit of a hit now, but each month you reduce the balance, you'll see a benefit, albeit small. Once paid off, you'll likely see a rebound, will have a bit of a track record in the credit world, and a paid off MacBook!
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Postby willgatlin25 » Sat Sep 21, 2013 2:02 pm

Minimum payments won't exactly "hurt" your credit score, but holding a card with high credit usage will. Also, making only the minimum payments will take forever to pay off the debt. If you have to make the minimums for a while then you'll be fine, but pay it off as soon as you can. And yea, don't plan on applying for more credit while you have that account so high.

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Postby SuperKirby » Tue Oct 01, 2013 3:27 am

Back in college I had no choice but to do what you (OP) did. Like others said, technically the minimum payments doesn't hurt your score, but keeping a high UTIL will TEMPORARILY hurt your score. Good news is that if you have no baddies, then after you pay it off, you'll see your score start to climb rather quickly!

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Postby takeshi » Tue Oct 01, 2013 8:22 am

willgatlin25 wrote:Minimum payments won't exactly "hurt" your credit score, but holding a card with high credit usage will.

^ This. You're not scored on whether payments are minimum or not but you are scored on utilization.

siskas wrote: I even be worried about it since it will for sure be paid off within 8 months versus the 18?

Not unless you're apping for something but if you can only make minimum payments then you probably shouldn't do so anyway. Your score will increase as you decrease utilization.

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Postby daniel2304 » Wed Dec 04, 2013 1:56 pm

$1,300 for 18 months means you should pay around $75 a month if you want to pay it off before the interest rate kicks in. And this payment should be higher than minimum payment already, so I don't understand why you're worry about it too much.

Or do you want to pay minimum payments for a first few months and then making bigger payments toward the end of the term of financing? While it's ok to do that, I don't recommend to make it a habit of it since you will never ensure you can afford bigger payments in future with a lot of "unexpected." Having said that, minimum payments won't hurt your score but high utilization will. But it's only temporarily.
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