Paying On Time

Of course, if you pay your credit card payments on time, you believe this will boost your credit score, right? Not always. If you only pay the minimum due on your credit card balances, you may not be reducing your debt-to-available credit ratio enough to improve your credit score.

Example: You have a credit card with a $5,000 credit limit. You have a $4,000 balance. You have used 80% of your available credit limit. Ideally you should have no more than a 25% balance, but you could even have up to a 50% balance and still have a fairly high credit score. Due to the high balance, this account would negatively impact your credit score.

In addition, you are not reducing your debt. Instead, you are actually increasing your debt. By only paying the minimum amount due, you significantly extend the total amount you will pay on the card over time and the timeframe it will take you to pay off the balance. Only paying the minimum due on your credit cards each month actually leads to more debt.

Example: You have a credit card account with a $3,000 balance and 12% interest rate. Your minimum payment is only $75.00 per month. If you pay only the minimum amount due, you will not pay this off for 4.3 years, and you will have paid $850 in interest. Note that if you pay just an additional $25 per month, you would pay this off in 3 years and pay only $585 in interest.

Pay All Accounts On Time!

Some people will fudge on other payments just so that they can make timely payments on their credit cards. Not paying on other accounts or paying late on other accounts in order to pay your credit card payments on time will negatively impact your credit. It creates negative marks on your credit report and drives down your credit score.

Another result of paying your credit card accounts on time, but paying late or not at all on other accounts, is that your credit card interest rates may be increased. More and more credit card companies are adding a caveat in their agreement that allows them to increase your interest rate if you default on other accounts. So, if you are slow paying your utility bills, or your insurance payments, or other payments, you may end up with increased interest rates on your credit cards.

Higher interest rates could make it even more difficult for you to pay your credit card payments. Your minimum monthly payment will increase due to the increased interest rate. It will take you even longer to pay off the principal.

You should always pay all your accounts on time. Set up automatic payments in order to not miss a payment or be tempted to let one slide. If you do, you won’t be late or miss a payment, and you won’t receive negative marks on your credit score. You will actually build your credit score. Some employers will allow automatic withdrawals from your paycheck to be put into a savings account. If so, have it set up, then set up automatic payments with your creditors to have your monthly payments come out of your new savings account. Once you get into the routine, you won’t even miss the money and you will never miss a payment.

Paying On Time

Pay All Accounts On Time!

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