Credit 101

Credit Score Q&A: Paying Credit Card Balances in Full vs. Minimum Payments

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A reader in New York City wants to understand if a sudden decision to pay off a high balance credit card in full versus paying the minimum balance owed each due date would appear “suspicious” to the lender and hurt the credit score?

In short, the answer is no.

Paying your credit obligations on time —whether you pay the balance in full each month or only pay the minimum amount due—reflects positively on your credit score and shows you have a strong, solid history of paying as agreed. Generally speaking, paying the balances on your credit cards in full will have a more positive impact on your credit score because it reflects a lower level of credit card debt, which is a significant factor in credit scoring models.

[Resource: Not sure where you stand credit wise? Get your Free Credit Report Card to find out.]

It’s important to keep in mind that the balance that is shown on your credit card at the credit reporting agency will reflect the balance last reported by the card issuer which is usually reported to the bureaus every 30 days (depending on the credit card issuer).  This is why the information reflected on your credit accounts at the credit reporting agency is a “snapshot” of the activity, balance, etc., from the last time the lender sent an update. For this reason, it’s important to keep in mind that when you pay off your balance, it may not be reflected immediately.  The balance will not be updated until your credit card issuer updates your account history with their regularly scheduled report to the bureaus.

Another advantage to paying your credit card balances in full each month is that it  also saves you money because you avoid paying interest charges — which can be quite substantial if you carry high balances.

[Consumer Resource: Tips for Paying Off Credit Card Debt]

Image: Morgan, via Flickr.com

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