Minimum or Full Payment on Credit Cards?

Question

Talk to me like I'm a 5 year old. I'll keep the values to small amounts

Let's say that your credit limit is $500.

You have $300 on your checking account, which can be linked to your credit payments. 2 scenarios:

Full payment.
Let's say you spent $400 in a month. They will then deduct $400 at the end of the month to pay off your credit, but since you overdrafted by $100, you will be charged $22 for it. So you end up paying $400+22.

Minimum Payment:
Spent $400, so your checking gets debited $10 as minimum payment, and the company sends you a bill for $390, which you pay off before the deadline. Total cost: $400.

So am I right to say that it's better to use the minimum payment scheme since I don't have to worry about overdraft, as long as I make my monthly payments on time? I'm just trying to build credit, I don't have plans of incurring debt. Just want to clear things up.

When you guys say make more than minimum payments, in my "sketch", I should pay more than the $10, say around $20? And when you guys say, don't pay off in a "lump" sum, are your referring to each end of the month bill, or like an acumulated lump sum, after several months? I was planning to pay off my credit card bills as soon as I get it, so I don't have any balance. I was just figuring that the overdraft might give me an added expense. Thanks guys!

Answer 1

This scenario is a good example as to why you wouldn't want your CC company to automatically deduct from your checking account, esp if you don't have enough in your checking to cover the entire CC balance. If anything, set up bill payment via your bank and you can control the amount you pay to any of your billers, including your CC co.

That said, so far the best thing to do is pay as much off your CC balance as your checking account (and your living expenses) can handle for the first billing period. Then, in the next one, as long as you have enough in your checking to cover, pay off the balance in your CC.

This will prove to the CC co that 1) you don't pay off your balance every month and 2) you can systematically pay down your balance over time. That will be enough for them to raise your credit limit and build your credit worthiness.

Answer 2

How about another option? If you pay a little more than the minimum due each month (say if your minimum due is $25 and you pay $30) then your balance will go down more quickly than if you just paid the minimum, PLUS it impresses the credit card companies and looks good on your credit report also. Be sure to pay it on time, whatever you do. But as far as building your credit, this way is much better than paying it off in one lump sum. They want to see a consistent record of on-time payments. Hope this helps!

Answer 3

Ok, it seems like people are trying to give you advice on building credit in general, however, it sounds like you just want to know what amount to automatically transfer. If you are concerned that you would ever overdraw your account by transferring the full amount, then don't set it to pay the full amount. Set it to pay the minimum payment, at some point before the due date on your card. This way you are always current on the account, and you avoid late fees which are usually $29+. Then, before your grace period is up, you should pay off the remaining charges accrued, so you don't get hit with finance charges, or the interest you rack up will certainly dig you in as deep as the overdraft fee.

Answer 4

If it's one of those cards that come to you with almost no available credit because they've charged you a lot of fees, I say pay it off all at once (lump sum) paying this off slowly may improve your credit score but it shows the card company that you're in no hurry to use your card. This will make them hesitating to give you increases. Sounds dumb but they want YOU to use it hoping that you make a mistake. Pay it off, then make purchases of your own. No matter what kind of card it is always pay a little more than minimum balance due, it lets them know you're no struggling with your payments.

Answer 5

Go with the minimum. Overdraft charges may change, depending on the number you rack up. Also, by making the minimum payment on your CCs, your credit score will rapidly increase. Hope this helps!!

Answer 6

Pay a little more than minimum. That affects your credit score a little faster in a good way.