When you are issued a credit card, you are told what your minimum payment will be based on your balance. That is usually pretty low and easy to meet. Yes, positive information will appear on your credit report and the minimum payments will help your credit score. Despite these positives, just making your minimum payment can actually hurt your personal financial situation over time, maybe even leading to a lower credit score down the road. Here is how.
- Only making the minimum payment allows interest to accrue on the remaining balance. If you owe $1,000 on a card with a 15% interest rate it can take you over five years to pay off the balance with minimum payments. You would have paid close to $1,000 in interest as well.
- When your credit score is requested by a lending institution as much as 15% of the score is based on your credit utilization ratio. The smaller your balances are compared to your credit limits, the higher your score will be. Minimum payments leave that ratio high and your score will suffer for it.
- By carrying a high balance, you do not have room for an emergency expense like a car repair.
Paying the minimum payments will meet all of the requirements that a card issuer has in place. As a matter of fact, the issuer is happy to see minimums…more profit for them. As you can see, it is in your best interest to pay as much as possible on your credit cards every month. Otherwise, you could find yourself looking for a debt consolidation company in Gainesville, FL before you know it.