A credit card bill always has a minimum amount that you can pay to evade late fees and penalties. Does this affect your CIBIL score?
Paying just the minimum due amount may indirectly affect your CIBIL score in the long run.
Read ahead to understand how.
Every month when you get your credit card bill, it mentions your total outstanding bill, as well the minimum payable amount.
Generally, the minimum amount is calculated as being 5% of your total outstanding balance. This amount is the minimum that the issuer will accept against the full amount that you owe.
A credit card holder is required to pay the minimum amount within the due date to keep their account active and avoid penalties.
By making at least the minimum amount, you will also be able to save your CIBIL score from being affected.
If you are searching for ‘does minimum payment affect credit score’, the answer is no.
While it is always advised to pay the credit card bill in full before the due date, if you have a cash crunch, you can pay just the minimum amount due.
But what happens if you only pay the minimum due amount month after month?
Paying only the minimum amount due can have negative consequences on your finances. If you do not pay the full amount, you will be charged a hefty interest.
Over time, if you pay just the minimum amount due, you will fall into a debt trap.
In the long run, this also increases your credit utilization ratio, which in turn can affect your credit score adversely.
The ratio of credit utilized to the credit available to you is known as credit utilization ratio. The advisable credit utilization ratio to have is 30%.
Sometimes when you are facing a cash crunch, paying the minimum amount might sound tempting. This is how it can negatively impact your finances -
When you pay only the minimum amount, you need to pay interest on the remaining balance. This interest tends to be on the higher side.
Paying just the minimum amount, your debt increases which will be increasingly difficult for you to pay off.
You end up paying much more than the amount you spent if you delay payments.
It is always a good idea to pay your credit card bills in full each month. But, if you are facing a financial emergency, and cannot afford to pay in full, you always have the choice to pay the minimum due amount.
Paying the minimum due amount on time will save you from late fees and also keep your credit score unaffected. But this will also mean you having to pay more and more as time passes. Chances are you may default in the next six months due to the large amount that you will have to repay.
To maintain good financial health, it is advised to pay the entire outstanding amount.
It is ideal to pay the due balance on your credit card to ensure you don’t incur any interest on the remaining balance and the spending you make later. However, in a financial crunch, you can choose to pay the minimum balance.
In case you pay less than the minimum balance, it will negatively impact your credit score. Moreover, the remaining balance will incur interest charges as well as a late fee.
If you pay the minimum due amount of your credit card bill, you will not have to pay any late fee. But, the credit card issuer will start charging interest on the remaining amount. Interest will be levied on any more purchases that you make using the card, until you pay the amount in full.
The purpose of credit cards is to provide repayment flexibility. Hence, there is a minimum amount and a total amount that needs to be paid. The smallest payment amount that your credit card issuer will accept is the minimum amount due. Typically, the minimum payment required is 5% of the total amount owed.
No, it will not rise. You will not see any changes in your credit score if you do not use your credit card.
If you are facing financial difficulties, it is better not to use your credit card frequently. Make payments with cash, as using your credit card will only increase your debt. However, if you use your credit card in emergencies, ensure the amount is minimal.
Paying only the minimum balance frequently can impact your credit utilisation ratio over time. This will in turn affect your credit score and reduce it.
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