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Will making the minimum payment on my credit card hurt my CIBIL score?

18-Feb-2016 written by : FSI-Team

Let’s face it. With an individual’s credit health fast becoming as important as it is to be financially fit, credit reports and scores thereof are in the limelight like never before. From the inception of one credit bureau in India, there are now four – namely, CIBIL, Equifax, Experian and CRIF High Mark – licensed to operate by India’s apex bank, the Reserve Bank of India (RBI). All this brings to the forefront the importance of the CIBIL score.

What is a credit score?

A credit score is a three-digit numeric representation of your creditworthiness that ranges typically from 300 to 900. It is a snapshot of your credit report that details your repayment history, the number of credit lines you have and the length of credit history, among other parameters.

A credit score helps a lender take a decision when sanctioning a loan, i.e. whether to approve or decline the application. It helps them gauge the likelihood of a loan going bad, or a customer defaulting on a loan.

What then is a CIBIL score?

It is nothing but a credit score offered by CIBIL, one of India’s credit bureaus. With CIBIL being the oldest bureau, credit scores are often referred to as CIBIL scores colloquially.

What affects the credit score?

There are several parameters that go into measuring your credit score, and important among them is your repayment pattern, or the payment history.

To ensure that your score does not get impacted negatively, what is important is timely bill payment. Any delay in making payment, whether it is on a loan EMI or a credit card bill will damage your credit score. Skipping payments too can bring down the score drastically, as to a lender you come across as someone who is unable to handle credit well. While some people do willfully default on making payment, others do it purely because they are unable to keep track of payment due dates. If you happen to fall into this category, instead of being a defaulter then, consider setting up payment reminders on your phone or tab. This will help you to pay all dues on time. Additionally, you can avail of automated payment options such as ECS mandates or standing instructions to your bank account, so that the money due is paid out without any intervention on your part, right on the payment due date.

When you make an outstanding payment on your credit card, there are typically two options available to you – one is to the make the complete payment and the other is to pay just the minimum amount due. While you can choose to make just the minimum payment due what you need to keep in mind is that the balance amount will not automatically go away – you will eventually have to pay it as well, and rolling-over or carrying forward the balance is only a short-term respite that you are offering yourself. When you roll over a balance, remember that the outstanding attracts finance charges, as well as interest charges. Interest charges on most credit cards are high, even as much as 36 percent when compounded annually. Further, with any fees and charges come the applicable taxes thereof, and when you add up all these amounts, you realise that you would have wound up paying significantly more than just the balance outstanding on your card.

On the other hand, making complete payments ensures that you clear off all bills as they come in, which also shows a lender that you are able to handle credit well and are not credit hungry.

Impact of payment on credit score

As mentioned, making a minimum outstanding payment will not harm your credit score, but do keep in mind that it will not help to improve your credit score either.

If you owe a large amount on one credit card it may not impact you as much as if you had multiple cards. Of course, most people do use more than one card at a time, and this is where a problem can come up. A card comes with a credit utilisation limit, and every card that has a low balance (owing to amounts rolled over) is what can affect your score. This is because your score will be based on the total amount you owe across all cards, or the credit utilisation limit, which is proportionate to the total limit across all cards. The ideal limit should not exceed 30 percent.

A high credit utilisation limit indicates that you may have a concern with solvency, even in your day to day life and possibly use debt as a crutch to make ends meet.

When it helps to make a minimum payment

It may sometimes happen owing to a financial contingency you are for some reason required to roll over the balance on your card. Such situations are okay, but provided they are a one- off case only, and do not form a regular pattern. Paying the minimum payment – albeit on time – is enough to keep your credit score positive and not bring it down like a delayed or missed payment would.

In conclusion

In order to maintain a good credit score, make sure your credit card spends are something that you can control and not let them spiral out of hand.

Use your card judiciously in order to help your credit history remain good and even improve over time.


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