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Good Credit Score Tip: Make More Than The Minimum Payment

9/21/2011

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Keeping up on credit card debt is an important part of maintaining a good credit score. Some consumers make only the minimum payment on their credit card balance, and while that may prevent them from defaulting on that account, it might also have some unintended effects to their credit score. It's important for cardholders to understand the benefits of paying more than just the minimum payment when possible.

Isn't the minimum payment enough?

Most consumers naturally assume they should only pay the minimum payment, partly because that's the approach they take with other monthly bills. However, this payment strategy might not be as advisable with accounts that accrue interest - particularly credit cards, which often come with higher interest rates.

How do minimum payments affect credit scores?

The actual act of making a minimum payment won't harm consumers' good credit score, because credit bureaus still consider it the "full" monthly payment in their history. However, cardholders with large credit balances often cannot effectively eliminate their debt with the smallest required payment, because their account will accrue interest each month. In fact, it is possible for a credit balance to increase even as its owner makes monthly payments. Credit balances account for roughly 30 percent of a person's credit score, and if his or her debt continues to grow, his or her good credit score could take a hit.

Ways to pay down a credit card balance

There are some ways for consumers to avoid seeing their balance inflate because of high interest and low payments.

  • Pay more each month - Consumers who pay even a small amount more toward their credit card payment each month may be able to prevent their balance from increasing significantly. Financially, this might not be reasonable every month, but it's important to try to put more toward that debt when possible.
  • Develop a payment plan - Cardholders who estimate how long it will take for them to pay off their balance and how much they need to put towards the payment each month may be able to develop a realistic plan of attack.
  • Keep abreast of credit situation - It may also be helpful to check one's credit reports and scores to see if any serious credit damage has already occurred. This can be the first step in a consumer's approach to fixing his or her credit situation.
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