So I get asked all the time on the comments if making minimum payments on your credit card in 2022 is going to be better or worse for your credit score.
because I think there's kind of a general myth out there that if you make minimum payments, it's going to help your credit score because technically you're a better customer for the credit card companies, but this just isn't true.
CREDIT CARD MINIMUM PAYMENTS GOOD OR BAD FOR CREDIT SCORE
There are other factors for making payments with your credit card that are going to help your credit score, but they don't necessarily have to do with making minimum payments.
So i'm just going to debunk that really quick i'm going to answer the question and then you guys can move on with your lives.
So if you do happen to be making minimum payments on your credit card, then technically speaking, you are a better customer to the credit card companies in the sense that they can make more money off you in the form of interest.
because when you are making those minimum payments, you're pretty much paying about 99 interest and one percent in principle and it can take you a very long time to get your debt paid off if you continue to pay the minimum payment.
but the flip side here is that if you keep spending more on your credit card every single month and your balance keeps going up even though you're making those minimum payments.
eventually, you're going to become more of a risk to the credit card company because you have too much debt compared to how much your limit is.
And so this is where it really can affect your credit score and it really doesn't have to do with whether or not you're making the minimum payment or not.
It has to do with how much debt you're accumulating compared to what your limit actually is because your credit card is actually affecting three different areas of your credit score starting with credit history because as soon as you open up that credit card, you're going to start generating credit history.
So if you leave that card open for 10 years that's going to help your score a lot better than just keeping it open for a year.
The next thing it's going to help with is called payment history.
So obviously if you're making that minimum payment as long as you're paying that off by the due date, then it's going to help your credit score because you're accumulating a payment history now.
just make sure that you don't ever miss that due date whether you're paying the minimum payment or anything else.
because if you do have a late payment, this can actually hurt your credit score and you can even pay more interest on your credit card because of penalties.
so just make sure that you always pay at least the minimum by that due date and then you don't have to worry about any of those problems.
then the third area that affects your credit score is called credit usage and we touched on this just a minute ago, but it has to do with how much your balance is compared to what your limit is on those credit cards.
So technically if you have a ten thousand dollar limit on your credit card, and you spend two thousand dollars during the month and you carry that over meaning you have a two thousand dollar balance that carries forward into the next month.
then you would technically be using up 20 of your credit utilization or your credit usage because you're using 20 of that 10 000 limit now.
If you want to end up helping your credit score with the credit usage, then just make sure that the balance that's being carried over every single month doesn't exceed thirty percent compared to your total limit.
So for instance, if you have a thousand dollar limit, then don't carry over a balance of more than three hundred every single month because that is going to help your credit score now, if you go over that amount over the 30 percent then that can end up hurting your credit score.
So as long as you carry a low balance compared to what your limit is, then your credit score can actually go up because of that credit card that you're using so as far as making minimum payments on your credit card go just because you're making minimum payments doesn't mean that you're going to help your credit score more than paying off your entire credit card because like we just went over there's the three different areas of your credit score that your credit card's affecting and as long as you're hitting all of those marks then it doesn't matter if you're making the minimum payment or not that just affects how much interest you're paying on the credit card.
So long story short as long as you pay off that statement balance in full every single month by the due date, then you don't have to pay any interest on your credit card.
And as long as you keep that balance low compared to what your limit is then technically you're going to be helping out your credit score as far as the credit usage goes making your payments on time and building that credit history.
So just do those three things, and those are going to help your credit score whether or not you're making the minimum payment or not.
So this was our full detailed explanation about credit card minimum payments good or bad for your credit score, What Happens to Your Credit Score?