why minimum payment plus £1?

leanne12345

Hi,

A lot of the time on here I read advice saying throw all your money at the highest interest debt then pay minimum payments plus £1 on the others, why the extra pound?

Thanks

[Deleted User]

It only applies to card, not loans.

It's to avoid the minimum payment flag that is applied to those account only making the minimum payment, which other lenders may interpret as a sign of stress, if the card isn't at 0%.

Candyapple

I've never had these so called minimum payment markers affect me, and neither have plenty of others:
https://forums.moneysavingexpert.com/discussion/5357459

[Deleted User]

The thing is, you'll never know whether they have affected you or not. It's not just used for acquisition, but also by your existing lender.

Every data selection for a promotional offer or credit limit increase that I've ever seen has included minimum payments as some kind of exclusion criteria, whether that be the last 6 payments have been minimum, or more than 5 in the 12 months etc.

Regulators are so down on minimum payments that lenders are very wary of extending further credit to these customers, in the event of it leading to a complaint.

Candyapple

Deleted_User wrote: »

The thing is, you'll never know whether they have affected you or not. It's not just used for acquisition, but also by your existing lender.

Every data selection for a promotional offer or credit limit increase that I've ever seen has included minimum payments as some kind of exclusion criteria, whether that be the last 6 payments have been minimum, or more than 5 in the 12 months etc.

Regulators are so down on minimum payments that lenders are very wary of extending further credit to these customers, in the event of it leading to a complaint.

Me personally, I think it's a myth. I can only speak for myself and my experience in obtaining credit from various providers over the many years. I only ever pay minimum on 0% deals whether that be for purchases or balance transfers and all the lenders have increased my limit intermittently without any request from me and have always received a much larger limit than I initially expected from a new lender.

I think your repayment history, your internal rating with whatever bank/lender, your salary and your current account turnover amongst a lot of other factors hold far more weight than if you solely just make the minimum repayment.

Each to their own

PeacefulWaters

It's not a myth if you're paying minimum payment and have increasing balances.

[Deleted User]

Indeed. But having been on the lending side of the fence, I'm going with it's not a myth.

But you're absolutely right, in that it's not the sole factor determining any decision.

GingerBob_3

Candyapple wrote: »

Me personally, I think it's a myth. I can only speak for myself and my experience in obtaining credit from various providers over the many years. I only ever pay minimum on 0% deals whether that be for purchases or balance transfers and all the lenders have increased my limit intermittently without any request from me and have always received a much larger limit than I initially expected from a new lender.

I think your repayment history, your internal rating with whatever bank/lender, your salary and your current account turnover amongst a lot of other factors hold far more weight than if you solely just make the minimum repayment.

Each to their own

Same with everyone, but as I understand it, the CRAs will mug you with a minimum payment flag if your account is not on a promotional deal, but they won't if it is.

JuicyJesus

GingerBob wrote: »

Same with everyone, but as I understand it, the CRAs will mug you with a minimum payment flag if your account is not on a promotional deal, but they won't if it is.

Possibly since if you have a debt at 0% it may well actually make more financial sense to pay the minimum while holding the money elsewhere (effectively doing small scale stoozing), so this behaviour shouldn't be penalised. Meanwhile, someone who's not on a promotional rate but is consistently paying the minimums is likely to be a poor credit risk since they are either unwilling or unable to pay more towards their debt while having it barely decrease or even increase due to interest or new spending.

paddyrg

...plus a pound is also a good habit to get into as with compound interest it reduces the debt by more than a pound (if you get my drift)

leanne12345

Very interesting, thanks all. I shall start adding an extra £1 just in case!