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Why credit card users should no longer pay just the minimum

Falling credit cards

Credit bureaus have another way to distinguish consumers’ credit habits. Credit bureaus recently started tracking whether you pay just the minimum due or more. Your payment record over the past several years is available for lenders to view with the new “time series payment data.”

All credit reports contain the time series payment data and you can expect lenders will find a way to use the information in making decisions to extend or deny credit. Time series payment data will be increasingly influential.

“Traditionally, credit card accounts on credit reports have contained balance information only as recent as your prior month’s statement,” said John Ulzheimer, a credit expert, who’s president of consumer education at CreditSesame.com.

The addition of time series payment data to credit reports allows for the reporting of your balances, the amount due on your credit card accounts and, most important, the amount you actually paid.

Credit card issuers will be able to distinguish between cardholders who carry a balance which can mean more profit in interest and cardholders who will be less profitable because they pay in full each month.

But the “time series payment data” information, which is available to any creditor viewing your reports, can potentially raise a red flag with lenders.

Paying just the minimum can make you look more risky to lenders.

A study last year by TransUnion found that cardholders who carry a balance on existing bank credit cards are five times riskier than cardholders who pay in full each month.

Even if you pay slightly over the minimum due or pay several times during the month you will appear less risky than someone paying just the minimum due each month.

Experian has been providing what they call “credit trends” for years. This information is similar to the new time series payment data.

An Experian spokeswoman, Kristine Snyder said “The information allows consumers to track the amount of their payments and can help them budget and plan as they pay down debt or choose when to revolve balances…The information also provides the consumer tangible proof that they are making payments and shows a trend of responsible use of credit.”

But you can bet the information is more for lenders than consumers.

Consumers looking to raise credit scores can no longer rely on just paying their credit card accounts on-time.

“Consumers who want to earn the highest scores are going to have to start using their credit cards in such a way that it allows them to pay in full each month, rather than simply paying some lesser amount before the due date,” he said. “Point being, there’s yet another reason to not carry a credit card balance” Ulzheimer said.

Of course there is another reason to pay more than the minimum. Paying just a few extra dollars per month could help you pay down credit card debt. Paying off credit card debt sooner allows you to save money on interest. For instance, paying an extra $10 each month could help you get out of debt. It may not seem like a lot, but paying more than the minimum on credit cards means that you’ll owe less in total interest charges in the future.

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