Carrying a balance on your credit card and paying only the minimum loan payment may or may not negatively impact your credit standing, depending on your situation.
Is there a relationship between your credit score and your payments?
First, how much you owe on your credit accounts comprises 30% of your Equifax Score. So, if your credit balance is increasing each month, you can expect a negative impact on your score. A balance that remains close to the credit limit on your account or close to the principal amount of loan can be interpreted by lenders as a sign of higher risk of missed or delayed payments.
What are the various credit accounts included in your credit file?
All credit accounts are included in the calculation of your credit score. Equifax credit score factors the total amount owed on all accounts. You’re at high risk borrower if you have a large number of accounts with amounts owed. But, if you make more payments to pay down your principal, or the initial balance of the loan, your credit score will go up.
So, if you want to have a decent credit score, pay your loan on time, even it means making minimum payment each month. But, consistency is the key here. If you keep on missing payment, your credit score will suffer even if you pay more than the minimum.
Second, lenders factor your payment behavior when reviewing your credit report. They will be interested to know “Why?” when analyzing the level of your credit risk, they will consistency of payment. So, even if you only pay the minimum, but you do it on a consistent basis, yes–that means not missing or delaying payment once in a while–lenders would look at your application favorably.
Lenders believe that something bad is going on in your finances when your payment behavior is constantly erratic. Do you make it a habit to make the minimum payment and sometimes make a little bit more? If you miss the due dates once in a while, your scores may suffer eventually.
Are you using your credit accounts to extend your income? Even if it’s not your intention, paying the minimum monthly payment and maxing out your credit could pull down your credit score. Do you have a concrete plan on how to pay off the balances? Can you stop charging more than what you can pay in the next few months? If your answer is, ‘No” to both questions– it may be time to consider organizing your finances.
Take a look at your credit report
Check if there are errors of entries-so you can avoid paying for accounts that have already been paid or paying for interests which shouldn’t be there in the first place. Your credit score and your finances don’t have to needlessly suffer from inaccurate entries in your credit file. Clean Credit can clean and repair your credit and give you a clean slate to start over again.