People who maintain decent credit scores make minimum required payments on time, but folks with great credit do more than consistently and promptly pay the minimums. Paying more than the minimum-required monthly payment may help you maintain or increase your credit score because it can help you keep your balances low relative to the total amount of your credit limits.
Credit card issuers typically set minimum payments at 2 to 4 percent of the outstanding balance. The actual rate depends on the financial institution, interest rate charges and how close your account is to exceeding your maximum allowed balance. This minimum payment is intended to keep your account current and below your credit limit. Charges like late or over-limit fees could increase your minimum payment. Prompt payments help maintain your current credit scores, but don't help you pay off a large balance quickly, and large balances can have an effect on your credit score.
Credit bureaus consider many factors when they calculate an individual's credit score. The balance of your credit relative to the total amount of credit that you can access can account for as much as 30 percent of the total. Prompt payments of more than your minimum required amount can help improve your credit if they help decrease your outstanding balances. This is particularly true if you are still making charges on your credit cards while you are paying it off.
The Better Business Bureau has some suggestions for improving your credit scores. These include paying more than the minimum, developing a plan to reduce debt and keeping track of your credit reports. According to the Federal Trade Commission, every consumer is entitled to access free credit reports; prudent credit card users would be wise to make use of this service to monitor reports and check for errors.
There are two main strategies for paying off credit card bills to reduce debt and earn higher credit scores. The most logical one is to pay off higher-interest-rate cards first. This is sensible because it reduces the balances that are running up the highest charges. However, it may make sense to pay more toward debt on lower-balance cards first. This can give debtors easier milestones to achieve and a quicker sense of satisfaction. The important thing is to select a strategy and stick to it.
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