Why paying minimum due is not an option for those aiming for high credit score?

If you are a credit card user then it is quite usual for you to get tempted to just pay the minimum due instead of the entire bill. Typically, the minimum due is almost 5 percent of the entire bill? For instance if your bill amounts to ₹2 lakh, your minimum due could be around 10,000. Then what incentive do you have to clear the entire bill in one go?

First of all, the credit card providers allow a 45-day credit free period only when you clear the bill within the stipulated time. And when you opt for the minimum due, the bank levies a late fee and extra interest for the days you take to clear the entire bill.

To make it worse, your credit score also suffers in the process. Therefore, if you are aiming to maintain a good credit score, you must refrain from settling for minimum due. So, if you have a tendency to pay the minimum due, remember that these are its adverse effects.

Adverse impact of minimum due

Missed chance to build strong payment history: There is no denying the fact that making the minimum does not show a default, paying in full indicates strong financial discipline.

Delays in reducing debt: A high credit score typically favours low or no balances and regular payments.

Signals financial strain: Regularly paying the minimum due signal to banks that the card holder may be struggling financially.

Increase in interest: Paying only the minimum means interest keeps accumulating on the remaining balance.

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.