Credit Card: Making minimum payment of credit card bill can affect your credit score, understand the complete math..

In today's time, people have got a lot of convenience with credit cards. Now you can buy expensive goods even at the end of the month because you have to pay its bill in the next month. But do you know that if the credit card is not used properly, your credit score can be spoiled? Many cardholders have the misconception that by making a minimum payment (Credit Card Minimum Payment), they will keep a good track.
Yes, this method indeed saves them from late charges, but it will not help in achieving or maintaining a high credit score. The truth is that repeatedly making only minimum payment (Credit Card Minimum Due) can prove to be harmful to you in many ways.
Do not consider minimum due as a profitable deal.
When your credit card statement shows the minimum due amount (Minimum Due On Credit Card), you may feel that the card company is offering a safe, manageable payment plan. But in reality, this minimum amount is usually only 2-5% of your total balance, which is the minimum amount needed to keep your account open. It does not reflect good financial behavior, nor will it indicate to the credit bureaus that you are a responsible borrower.
From a credit score perspective, making minimum payments increases your credit utilization ratio. Which is not good for your credit score.
Credit Utilization and its Impact
One of the most important things that make up your credit score is your credit utilization ratio, that is, how much of your available credit you are using. To have a better credit score, it must be less than 30%. When you make only minimum payments, your balance amount decreases very slowly, which increases your utilization. The higher your utilization, the lower your credit score will be, even if you are making all the payments on time.
High-interest charges and debt trap
The second problem is that due to minimum payment, interest will keep getting added to the balance amount. Remember that interest rates on credit cards are high, and if only a minimum payment is made, interest is charged on the balance amount. This means that you will have to pay more than the amount you have spent. This debt trap can harm your long-term credit health and financial well-being.
Paying the full amount on time will keep your credit score better
Paying the full amount on time every month is one of the best ways to build and maintain a high credit score. It shows that you spend money responsibly, it reduces your utilization, and it also saves you from paying interest on the balance amount. Therefore, paying only the minimum amount every month can harm you.
Banks keep an eye on your credit management pattern
Do you know that banks also look at your credit management pattern? People who consistently make full payments are more likely to have their credit lines increased and get loans on better terms than someone who only makes minimum payments. With a low credit score, it can be difficult to get a loan when you need it.
Short-term solution but not good for a healthy credit record
Minimum payments are only a short-term solution. They just prevent your account from being closed but are not good for a healthy credit record. If you want to develop or maintain a good credit score, make it a habit to pay your credit card bills on time and in full every month. This will not only improve your score, but it will also help you save on expensive interest.
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