You’ve probably heard that if you can possibly afford it, it’s better to pay more than the monthly minimum on your credit cards. But why is it so important?
After all, it can be tempting to pay that small amount each month if it’s available.
Read on to learn about why paying more than the minimum on your credit card balance each month can benefit you in the long run and boost your credit score.
By paying off more than the minimum each month, you lower your risk of maxing out your cards. Maxing out your cards lowers your overall credit score, as creditors would rather see that you manage what you’re owed well and in moderation.
Also, with every over-the-minimum payment, you’re knocking a chunk out of your credit card interest, keeping your payments over time lower as well.
If you find yourself in need of another loan or a new credit card, and you have others that are maxed out, it will be harder for you.
Show your creditors that you’re reliable and don’t bite off more than you can chew, and you’ll be more likely to be considered a good candidate for other cards or loans in the future.
Your “credit utilization ratio,” or the amount of money you owe in the context of how much money you’ve borrowed and how much credit you have available, is key to determining your credit score. If you owe more than 30% of your overall credit limits, your credit score will probably suffer.
And your credit score is more than just a number. A poor credit score could make it harder for you to secure a better financial future for yourself. With bad credit, mortgage lenders, apartment landlords, car loan lenders, and other creditors might look at you with suspicion.
It could also hurt your chances of securing a better job, as some potential employers check your credit as part of the job application process.