Does Paying Only the Minimum Amount Due Affect Your Credit Score?

 What is the Minimum Amount Due on Credit Cards

 As you might have observed on your credit card statement, there is a total amount due and a minimum amount due. The total amount due, as you may guess, is the sum of all your spends in the given billing cycle plus the amount pending from the previous billing cycle, if any. The minimum amount due is the minimum amount that the card issuer would accept for payment towards your statement balance.

 The minimum amount due as mentioned on your card’s statement is usually 5% of the total outstanding amount. If you pay just the minimum amount due by the payment due date, you would not incur any late payment fee, however, the interest rate as mentioned on your credit card’s MITC (Most Important Terms and Conditions) shall be applicable on the rest of the amount.

How Do Credit Card Minimum Payments Work

As mentioned above, credit card issuers give you an option to pay only a certain fraction (usually 5%) of the total amount due on your statement by the payment due date. If you are facing a financial crunch, this option can be helpful in the short run, however, whenever possible, it is always advisable to pay your credit card dues in full by the payment due date. This is because, by making only the minimum payment, you can save yourself from the late payment fee and being reported as a defaulter on your credit report, you do have to pay the applicable interest on the remaining amount until the same is paid in full. This interest is usually quite high- anywhere between 3%-4% per month.

How Making Only the Minimum Payment Affects Your Credit Score

If you pay only the minimum amount due as mentioned on your credit card statement by the payment due date, your payment shall be considered on time and your credit score shall not be affected. However, although payment of just the minimum amount due in itself does not impact your credit score, if you get into a habit of paying only the minimum amount due, over a long period of time, your credit utilisation increases, which in turn does have a negative impact on your credit score.

Most finance experts suggest that credit utilisation of more than 30% negatively affects your credit score. Therefore, even if you consider paying only the minimum amount due because of a financial crunch, you must ensure that your credit utilisation does not exceed 30% in order to avoid any negative impact on your credit score.

Report from Credit Card Issuers

If you pay only the minimum amount due, your card issuer would consider your payment to be on time and the same shall reflect on your credit report as well. Therefore, while the DPD in your credit report will remain unaffected, your credit report will clearly show the outstanding amount and the credit utilisation.

Tips to Maintain a Good Credit Score

If you wish to maintain a good credit score, here are some quick tips to go by:

• Pay Your Obligations on Time: As a financially responsible individual, whenever possible, you must pay your credit card dues and loan EMIs in full by the due date. The minimum payment option should be used only in case of a financial crunch or emergency.
  

• Keep Credit Utilisation Low: For a good credit profile and a high credit score, it is advisable to keep your credit utilisation less than 30% of the total allowed limit on your credit card. It shows that you are financially responsible and your expenses are well within your means.
  

• Avoid Too Many Credit Enquiries: Whenever you apply for a loan or a credit card, the lender/card issuer places an enquiry regarding your credit report and credit score with the credit bureaus. Too many of such inquiries within a short span of time affect your credit score negatively. Therefore, you should avoid applying for credit cards and loans too frequently.
  

• Have a Good Mix of Secured/Unsecured Loans: A good credit profile has both secured as well as unsecured loans. Having a good mix of the two types of loans shows your ability to handle both kinds of debts.