If you are like many Americans, your income is not what it used to be. You may be working part-time or freelance jobs and living on a low or minimum wage. If so, you may wonder how this affects your credit score. Here’s some information about how minimum wage can affect your credit score as well as tips on how to get things back on track if it has been affected negatively.
What is the minimum amount due on a credit card?
The minimum payment on credit card is the least amount you must pay each month. It’s calculated by adding the minimum payment to the balance, which means if you pay less than that, it will still be reported as your “minimum paid” for that month.
The minimum payment is not the same thing as your interest rate or even your actual minimum required monthly payment. Your interest rate may be higher than or lower than this number (though usually higher). The real amount of money you need to pay off on time every month can vary depending on how much of your balance is subject to interest and what kind of promotional offers are being offered at any given time.
According to the SoFi website, you should “Keep in mind that if your revolving balance is less than the minimum payment, your creditor will typically require you to pay the total amount. Because minimum credit card payment guidelines differ from creditor to creditor, you’ll want to get familiar with your credit card payment rules — ideally before you even apply for a credit card.”
How Making Minimum Payments Can Affect Your Credit Score?
Payment history is one of the biggest factors that affect your credit score, so if you’re making just the minimum payment on your debt each month, that’s not going to help. The longer it takes to pay off a balance, the more interest you’ll pay—so as long as you’re paying only the minimum payments, it will take longer for you to eliminate an account from your credit report and save money in interest charges.
If someone were considering taking out another loan or opening a new line of credit in order to get some cash flow going when they’re having trouble paying bills or keeping up with their current ones, lending institutions might consider this risky behavior because it shows that they may be willing to overextend themselves financially.
Can you just keep paying the minimum amount due every month?
It’s true, you can pay the minimum amount due every month (or even a bit more) and still have your credit score continue to rise. But this isn’t the best way to go about it.
The reason why is pretty simple: if you always make just the minimum payment on your credit card debt, it could take years longer than if you paid off that same amount in full each month. And since credit scores measure how much of your available credit limit you use and whether or not those balances are being paid off each month.
They don’t care about how much is going toward principal (the actual balance). So while all that extra money might seem like it would be better spent elsewhere (like paying down other debts), it should actually go toward getting rid of as much as possible on your highest interest rate accounts first because those are costing you more money in interest charges over time than any other type of loan product out there!
The answer is yes and no. If you have a good credit score, paying only the minimum amount due each month will not affect it. However, if your credit score is not that great or it’s just starting out, then making small payments can hurt your chances of getting approved for loans or credit cards with higher interest rates in the future.
