Wednesday, 21 September 2016

Does Paying The Minimum Amount Hurt Your Credit Score?

The way you manage your credit and make payments can greatly affect your credit score.  Even though many loanees and credit card holders make minimum payments they manage to get a good score because they make the payments on time. On the other hand despite making full payments but missing some every now and then many people find it difficult to get a decent score. When lenders consider loan applications not only they check your score but also your payment patterns. If you are the kind of person who has a high credit card limit but pays only minimum your odds are low when it comes to getting a loan approved.
What Happens When You Make Minimum Payments?
Ideally not only you should pay your EMI’s and credit card bills on time but also in full amounts. This is extremely important if you want to maintain a good CIBIL score. Credit report India, which is regulated and controlled by CIBIL holds significant value today more than ever. Thus, you shouldn’t be careless with your credit and monitor your score frequently. There are plenty of websites that can be found simply by googling “check my cibil score online free”. These provide a predicted figure rather than an accurate figure. If you want to know your exact CIBIL score then you can fill out a form on the official CIBIL website and get a copy of your actual report by paying a fee of 500Rs.
There are a lot of misconceptions regarding the effect of minimum payments on cibil reports.  For instance, many people believe that making minimum payments can only have negative effects and thus become careless with the timing itself, missing payments frequently. However, they are unaware that even if you are unable to make full payments you can still save your CIBIL report from a lot of damage by making minimum payments but on a consistent basis. By making minimum payments and those also inconsistently you can easily make matters worse.
A concerning factor for the credit card users is the changes they make in their credit expenses. Problems occur when not only they make minimum payments but also increase their credit card usage. This changes their credit utilization ratio and thus the CIBIL score. The key to keeping up a good credit score is maintaining the credit utilization ratio under 30%. By using more credit but paying little to the bank you lose trust of the bank.
Here are the drawbacks of making minimum payments in general-
·         Additional Interest- One of the major drawbacks of making minimum payments is that you your unpaid balances collect additional interest that you will eventually have to pay anyway. You can save yourself from the additional dues by simply paying on time.
·         Loss of trust- While most banks won’t trouble you for sticking to minimum payments you surely land on their “shady-list” for the same. You don’t come off as a strong individual credit-management-wise when you play safe and stick to minimum payments.
·         Loss of Credit Score- You are quite likely to see a damage to your credit score if you will stick to minimum payments. The damage, whether small or big, could take several months to be fixed.
Why Banks Have Become so Concerned With the Customers Who Make Minimum Payments?
Customers who had been making minimum payments were on the bank-radar since a long time but lately they have become more concerned, thanks to the results of an important survey that have emerged. According to this survey it was found that the people who make full payments were 63% less likely to default on a loan. However, the customers who make minimum payments have as much as 85% higher chance of defaulting on a loan.

Whenever possible you should try to make full payments. If that’s not possible then you should at least try to keep your payments consistent. Banks don’t like it when customers stick to minimum payments or just-above-minimum payments.   

1 comment:

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