Minimum payments (or just over?)

gglaze

Sorry if this question has been answered before, I did a search and couldn't find anything.

I am under the impression it is generally not good for your credit report to pay only the minimum on your cards each month. I believe you get points for paying more than the minimum, if you can't afford to (or don't want to) pay off the whole thing.

Obviously when doing promo offers and shuffling, the idea is to maximise the amount used in lowest rate credit lines, for the longest amount of time. So therefore you want to pay the minimum amount on those, and dedicate any extra funds to paying off the higher rate balances.

So I have always tried to meet both of these goals by paying slightly over the minimum on each card, each month. I've read about others who pay about £10 over the min. Personally my formula has always been: round up to nearest £1, and then add £1 more. So for example if the minimum is £35.45, I would pay £37.

I've gotten letters from some cards in the past, I seem to recall barclays in particular, stating something about "oh we've noticed you are paying just over the minimum, wouldn't you like to pay more?"...so clearly they have the means to detect that I am only paying £1 over the minimum. So perhaps my strategy isn't working as well as I had hoped, and I'm not really getting much benefit for my credit report?

Does anyone have more knowledge on this? Is there a better rule of thumb? Should I pay £10 extra instead of £1 extra? Should I change my formula to percent-based, i.e. pay 10% extra or something? What is the best way to minimise the amount I am paying off on my low rate balances, but also minimise any damage to my credit report due to paying only the minimum?

SCO

I do the same, just add a £1 extra.

while the credit card company sends you letters saying "dont you want to pay more", paying the extra £1 gets rid of the minimum payment marker on the credit repoprt which is the goal.

MonkeyMad

Not unique to you OP but, why is there an obsession with 'making payments to improve my credit report'? What is wrong with just paying the bills back in the most cost effective manner you can afford?

gglaze

I guess in my case it is because I am doing a lot of CC shuffling and have been doing for many years, even before I came to this site and found out there was a name for that!

Also because I have some mortgages and would like to have a decent credit report to give me options to refinance them should rates go bad...

Also because I think I already have quite a black mark for high "revolving balances" due to the constant credit card shuffling.

And when it is time to shuffle, I'd like to be sure my credit score is still good enough that I can close and/or open new accounts as needed to carry on.. and also presumably the best BT offers go to those with the best credit?

I'm not looking to just eventually pay everything off and then live debt free forever after that - I'm looking to maximise my usage of cheap credit as another source of funding - so it is a constantly revolving thing, and depends on a good enough credit report to keep it going, right? Especially now in what are still tough times credit-wise.

HappyMJ

The best way is to use the credit cards and pay them off in full each month. If you find you have no money after paying the bill straight after being paid then use the cards for new purchases throughout the month and you will not be charged interest if you clear that the next time you are paid. Do that every month and your credit report will look good.

MonkeyMad

Be careful that you bear in mind that at some point your 'other source of funding' has to be repaid and that whatever your credit rating, low interest deals may not be on offer to you since they are not profitable. I suspect the min payment marker has very little affect, the biggies are account being in order, and affordability.

Rafter

I think using this technique, and spending presumably £10's per month in interest cost, just to 'improve' your credit report is wasting your money.

Ultimately your credit report records your balance, limit, last payment and whether you have made payments on time and in accordance with your credit agreements.

Building your credit report is really showing that you can manage credit and operate well inside the limits you have been offered.

If you have the disposable income you are far better off paying as much of your interest bearing credit card balances rather than earn low or zero interest in your current account.

Ultimately if you are paying 10%+ for credit, the card company has won! You are a lovely profitable customer. If you don't want to be in this situation then you either need to budget so you don't need expensive credit or be sufficiently financially savvy to game the 0% and other offers - although the opportunity to make money is much more limited now they have introduced balance transfer fees and with savings rates so low.

R.

gglaze

MonkeyMad wrote: »

Be careful that you bear in mind that at some point your 'other source of funding' has to be repaid and that whatever your credit rating, low interest deals may not be on offer to you since they are not profitable. I suspect the min payment marker has very little affect, the biggies are account being in order, and affordability.

Yeah, I pretty much suspect the same. My strategy over the last couple years has definitely been focused on weaning myself away from more CC shuffling and getting most of it paid off and closed out - specifically because, as we had guessed a year ago, and are finding out now, there are almost no BT offers left to keep the shuffle going. So in principle of course I agree with you guys, getting it all paid off is the way forward.

But still just curious about what strategies people use to minimise damage to the credit report while still effectively using at least *some* of their credit line, especially when it's *cheap* credit. I.e. if someone is going to give me an effective 1.9% APR credit line, it would be irresponsible not to at least consider it, and other than the extra points on the credit report, I don't see much downside to taking on additional cheap credit.

gglaze

To be clear, I'm not talking about paying 10% of my total balance down each month (although perhaps that would be a nice personal goal)..

I'm talking about the best strategy to pay a "spread" above the minimum balance, so that I won't get counted for only paying the minimum balance. That spread might be (as it seems me and others are doing) simply £1 extra. But it could be, for example, 10% extra - i.e. if your min payment is 35.45 then you could add 3.55 as 10% of that, to get a total £39 payment. Perhaps 10% is a better theshold. Or perhaps, as another post I saw mentioned, a full £10 is a better threshold. But of course then that's £10 more you could have used to pay a higher rate balance instead, so you could be doing more harm than it's worth.

HappyMJ

gglaze wrote: »

To be clear, I'm not talking about paying 10% of my total balance down each month (although perhaps that would be a nice personal goal)..

I'm talking about the best strategy to pay a "spread" above the minimum balance, so that I won't get counted for only paying the minimum balance. That spread might be (as it seems me and others are doing) simply £1 extra. But it could be, for example, 10% extra - i.e. if your min payment is 35.45 then you could add 3.55 as 10% of that, to get a total £39 payment. Perhaps 10% is a better theshold. Or perhaps, as another post I saw mentioned, a full £10 is a better threshold. But of course then that's £10 more you could have used to pay a higher rate balance instead, so you could be doing more harm than it's worth.

Makes no difference as a previous post that was cross posted with yours.

JohalaReewi

gglaze wrote: »

I am under the impression it is generally not good for your credit report to pay only the minimum on your cards each month. I believe you get points for paying more than the minimum, if you can't afford to (or don't want to) pay off the whole thing.

Having a lot of outstanding debt on your credit report is not good and if it appears that you can only pay off the minimum amounts, it looks like you are almost going under.

Does anyone have more knowledge on this? Is there a better rule of thumb? Should I pay £10 extra instead of £1 extra? Should I change my formula to percent-based, i.e. pay 10% extra or something? What is the best way to minimise the amount I am paying off on my low rate balances, but also minimise any damage to my credit report due to paying only the minimum?

You could pay off as much as you can so that you don't appear to be maxed out on credit. Obviously, if you are on a 0% deal then paying the minimum is the thing to aim for but it will show on your credit report that you still owe a lot of money which might not be a good thing. YMMV