If you are keenly interested in getting ahead of your debt one of the best ways to do it is to maximize the payments on your monthly credit card bills. Statistically speaking, consumers who pay more than the minimum on their monthly credit card bills have been shown to have delinquency rates that are significantly lower than the rest of the population, not only on their credit card payments but also on other loan payments and even their mortgages.
It’s also been shown that people who only pay the minimum amount that’s due on their bill every month are much more likely to experience credit problems, higher delinquency rates and much higher service.
All of this information comes from a study that was recently done by one of the ‘big three’ credit reporting agencies, TransUnion out of Chicago. In their study, they have come up with two new terms for consumers depending on whether they pay the maximum or minimum on their credit card bills. These new terms are ‘transactor’ for people who pay off their cards in full or pay more than the minimum every month and ‘revolver’, or a person that only pays off a portion of their balance monthly.
Not only that but TransUnion has actually quantified the risk that a revolver represents and have also found that not all people who they classify as revolvers are the same. What their study shows is that revolvers who pay the minimum plus a little extra each month actually present less of a risk than revolvers who pay the minimum and nothing more.
What this study shows in effect is that, even if you’re only paying 5% to 10% more on your credit card payments every month, most creditors are going to be likely to view you as a positive credit risk rather than a negative.
The take away from this is that consumers who can’t pay their credit card bills in full every month but still manage to pay more than the minimum will be viewed in more of a positive light by lenders and credit card companies. Indeed, the more that a person pays above their minimum every month the better it is for their credit.
Interestingly, less than 20% of American consumers pay only the minimum amount on their credit card bill every month, something that is actually a positive sign for the United States economy. Even better, over 40% of credit card users pay their credit card bills in full at the end of every month. (These are what TransUnion calls the transactors.)
Truth be told it’s no big secret that paying only the minimum amount on your credit card bill will send a powerful, and negative, message to your credit card company that you have a cash flow problem and that you are probably a poor credit risk. Also, you can be sure that if your credit card company feels this way, other creditors will feel the same.
The clarity that this report brings to the issue is that people who do pay more than the minimum every month are those people that are also more likely to pay their other bills on time, something that makes them a better financial risk for other creditors and lenders. So, even if you’re not able to pay off your credit card bill in full every month, if you can pay the minimum +10% more (or more) you’re going to get a few positive marks from your credit card company and from other lenders in general.
The way we see it, anything that a consumer can do to increase their standing with lenders is a good thing and so, whenever possible, make sure to pay more than the minimum on your credit card bills every month. The benefit of course is that, if you do, you will also get out from under your debt much faster, something that will benefit you financially and many other ways. It also helps if you use a reputable bank that provides valuable credit and debt cards.
If you have questions about credit, your credit score or anything else that relates to personal finance, please let us know and we’ll get back to you as soon as we can with helpful answers.